Sam Altman had a pretty good litmus test for this:
"If no new or current users/advertisers/customers/etc care about what you're doing, and no one in the company has a plan (or, more commonly I think, a desire) to fix it, you are probably in bad shape."
http://news.ycombinator.com/item?id=95876
This sounds like a pretty high bar, but there are lots of startups in this position. Mine was when I folded it up - my cofounder had just left for business school, we'd been rejected by YC 3 times, we had basically no users, and I had run out of ideas for how to get users. I've met other founders in their mid-30s who've been working on their "startup" for the past 10 years, and are still in this position.
In contrast, Blogger and Gravatar both had thousands of happy users, and were growing, and had attracted the attention of some fairly important people (Dan Bricklin, anyone?) They weren't smash hits, but they were clearly on the right path in the dimension that matters - do people want what you make?