Hey There Dan!
I've enjoyed your posts here since becoming a member...thanks!
Niches are always where I end up making most of my money, so, you're on the right track here.
My favorite tools to do niche research are:
WordTracker www.wordtracker.com You don't have to get a membership to start using it...or ever really!...the free trial gives you results from MSN which has about 22% of the search business. That's enough to get you started.
What you're looking for is a KEI of 100+. If you find one like that then you've got a start. The KEI is a ratio of searches versus sites that can fulfill that search...the higher the KEI the better for you.
DigitalPoint http://www.digitalpoint.com/tools/suggestion/ This gives you the sheer number of searches for a particular keyword or phrase. I end up using this one more than any.
The main thing with niches is to find a niche that has people who are already buying things! Like John Reese said, Sell what people are buying!
That's why I use the DigitalPoint tool...I don't worry much about the competition, so I don't need the KEI.
Find a great keyword/phrase...2-4 word phrases are best...one that gets 25,000+ searches a month and then find out what the competition is doing in that niche...look at the #1 through #10 sites on Google...see what they offer. Look for forums on the topic...read and digest what's there
Then...either find affiliate products...or, my favorite, make your own product to sell and jump in!
Another way to get some income from a niche is to use AdSense sites based around your great niches...but that's another whole subject!
Hope that helps in some way or other.
Dennis Lively