There's always room for new entrants. What about Google overtaking Yahoo and Facebook overtaking MySpace? In hindsight it's easy to point out flaws, but at the time, each of the respective sites were their markets leader.
classifieds, however, is a very simple market, and craigslist does an exceptional job of serving that market. you can't beat them on price or reach, and there are no other important features. the only hope of success in selling classifieds is to launch into geographical areas or languages they don't serve. it's also a fairly low-margin market, and the primary customers are cheapskates.
why would you attempt to enter a market like that when there are underserved, lucrative markets to be exploited?