If you are in a market where "thousands of sites out there looking to sell the same products that you offer" than you probably will have a hard time anyway. Once you focus on a nische it will also become easier to attact an active community and reap the benefits that you mentioned.
sbspalding Very true. I should have said "basically the same products." As a tee-shirt company, for example, you can differentiate pretty substantially but you still sell tee-shirts so it might be hard to fight against the more general interest retailers like Amazon or Threadless without nurturing trust and loyalty through stellar service and community.