The $64,000 Question
You have asked the question that all bloggers want to know. Can I make money doing this? The answer seems to be only if you have an assload of traffic. I checked the rates for BlogAds on both Instapundit and The Daily Kos, both of which average 140,000+ visitors a day. Then I checked the number of ads on each site. Instapundit makes $3750 a month and The Daily Kos makes $5000 (do to having more ads). This equates to $45,000 - $60,000 respectively.
If you could get half that traffic, you could expect half as much in ads, $22,500 - $30,000. That is still an assload of traffic and seems out of reach for bloggers such as ourselves.
The idea of merchandise is good, but you must have a really popular site in order to move merchandise. So again, we are back to traffic.
I have a side project that I am working on that I hope will become somewhat of a cult hit once I get it up and get some advertising done. Hopefully it will make me some money, but I am not counting on it. I will be happy if it pays for itself.
Even porn is no longer a sure bet. The market is so saturated, you really have to find the right niche and do heavy advertising in order to get the customers needed to support it and you. (I have considered this route and am still looking into certain possibilities.)
When I decided to quit the rat race a couple of years ago, I only knew that I was fed up with all the BS. It didn't take long however, to figure out that I needed to find something new fast. I decided to do freelance consulting. I don't make nearly as much as I did, but my daughter and I stay fed. In addition, I work from home, which has greatly improved my quality of life. Furthermore, it has enabled me to pursue what I would consider to be my dream job.
I have almost transitioned to the point now that I can give up my consulting gig and focus solely on my dream.
So, in summation, I would say that by all means, continue to look for ways to profit from your site, but don't count on it. Suck it up and make the sacrifices necessary to achieve your dream. It may suck in the short term, but in the end you will be much happier.