* Incentives for users to post, i.e. beating the chicken and egg problem:
1) Find a way to offer a payment service, or easily integrate with google checkout, so that the user's "Buy" button is automatically hooked to their GC account and the item description, link to menkle.com item, etc is in the GC transaction email. Don't use PayPal.
2) At least at the start, advertise some posts in other ways. You might buy google adwords that link to specific items, make a single-page poster listing half a dozen good items and have it put up around college campuses and other place, etc.
3) Attract buyers by buying certain items and re-selling them through the site, trying to break even on the transaction and taking a hit on the overhead of finding, dealing with the customer, storing it in the mean time, etc

* Best Catagories: I am not sure there is anything in particular you can focus on. If there are catagories that Ebay and Craigslist forbid, that are easy to handle, then you might advertise to buyers / sellers for that catagory, but the only such catagories that come to mind are firearms and used underwear. You can probably do the firearms, as long as you try to only assist in-state transactions, and you prominently warn parties that transactions are archived on the site forever. Maybe you could allow someone with a FFL to pay for a special account where they could do interstate firearms posts. Offering pets for free is another one.

* What I wish I could do on Craigslist:
1) Make a good search engine for historical pricing data, so I can see if something is a good deal, and price my own offerings. This is hard on CL because there is no way to tell if a posting ever sold, or if the transaction occurred at the advertised price.
2) Archive all posts in a searchable manner. This is good for pricing, but also for tracking down stolen shit.
3) Don't stop people from selling, trading, or giving away pets.
4) Swap meet - see below
5) Never completely delete posts. You can make them "go gray" YC-style with a few flaggings, but if the poster wants to remove it, or the transaction is done, it should go into some permanent archive. Access to the permanent archive can be sold at a subscription of $10 a year or something if you need to keep out spammers and etc.

* What I would change about your site to make it better:
1) Use a simple, no java script, craigslist like or google like interface. Look at plentyoffish if you want something a little more featured than CL. This site (yc) is also good.
2) In addition to searching by zip or region, have a "special region" called "mail order" for people buying or selling through the mail.
3) Offer a way to do an auction. Avoid the sniping crap by extending the auction for an hour every time someone makes another bid (i.e., make it a real auction)

Here's a way to try to get jumpstarted: hook up with some small flea market to do a "county wide garage sale". Charge $5 to pile your shit in a parking lot to sell it, free admission, the $5 charge is waived if you post all your stuff for sale on merkle 30 days before the swap meet.

I would love to consolidate all my meeting of potential craigslist buyers, and all the driving to check out items that turn out not to be as advertised, into one day and one location. I could tell people I'm interested in the item, and they should bring it to a certain place at a certain time, and then I could do all the haggling and get my business done in one hour and save gas.

I like your idea. The most important thing is to make the interface cleaner, don't use ajax or javascript or anything else that a web designer would think was cool.