Ebay is suing Craigslist right now.
Apparently Ebay got onto the Board, used gained insider info to set up competing site Kijiji, and is now getting kicked off the Board.
Story here:
eBay’s Craigslist Suit About Classified Ads
Good point that it hurts newspaper ad revenue.
Not sure exactly how CL sustains their business model, but it's a free-market.
Their free ads keeps a lot of crap from going into the garbage, saves time shopping yard sales, and leaves consumers with discretionary capital to pay off the mortgage or purchase something else new(another payment plan).