This is obviously a huge, untapped marketplace. I have read numerous posts and articles about why this is not working!

Well, when everything is free nowadays, how can you expect anyone with that mindset to offer up their hard earned moola for some intrusion marketing scam.

The key today is to offer free stuff and hardly (if at all) mention anything about your real reason for being there. (sell your stuff!!) 

I think you have to decide what you are really good at or knowledgeable about and then put it out there for consumers to use or share. Sort of like the free e-books that you can download at some sites with the hopes that while you are there, you may check out some other stuff.

This is more like the old “leader” items that would get people into a store with a cheap advertised product and then hoping they would trip over other higher priced goodies in the process.

The trick is, is to make this type of advertising effective on social networking websites. 

With Search still the number one vehicle for advertising simply because visitors there ARE looking for something, social networking websites are stalling. Users are there to kibbutz with friends and not necessarily looking to buy anything. 

Until an effective method of luring visitors into purchases on social networking websites is working, then alternative methods of revenue such as widget and avatar purchase/upgrades may have to fill that void.