It seems like it'd be irrational to take on Craigslist right now. They own the audience. The audience is what matters most. Anything you could do to try to take the audience, Craigslist could probably do too. But they start out with the audience, and you start out with nothing.
As PG would say, Google beat out Yahoo, Altavista, Excite by improving something that wasn't as good as it could be.
BUT, your question about why people don't work with CL is an interesting one. I don't recall ever seeing a way to get at their data aside from screen scraping...
On just the search engine level, right now there really isn't one. This is sort of how Google ended up on top, no? I think people are less attached to an actual search engine then they would be to craigslist! Search engines job is to return the best possible data for your search. Craigslist job is to get the best possible response to your Ad. If someone with far superior search results popped up tomorrow, I think people would slowly make the transition as they once did to Google and other various search properties.
At this point in the game, something like Google or Yahoo goes far beyond a search engine... Email, calendars, ad networks, analytics, etc.. All these things combined make it so much harder to walk away (theres your network effect). I personally couldn't leave Google. They house to much of the information and tools I use on a daily basis, it wouldn't even be worth the effort at this point. The "new" offering would have to be huge.
As PG would say, Google beat out Yahoo, Altavista, Excite by improving something that wasn't as good as it could be.
BUT, your question about why people don't work with CL is an interesting one. I don't recall ever seeing a way to get at their data aside from screen scraping...