The only feasible way I see to compete against craigslist is to be local. Start with one small city, get your bearings and understand the market there and then move into a larger market one by one. I would recommend against SF but Sacramento, Seattle, Houston, etc would all be good markets to launch a full-scale local classifieds. I know several companies that are working on this right now and they seem to be having some luck. It takes dedication to the market to get a foot in the door and leverage to open it all the way.