A Long but Hopefully Useful Reply...
i think a lot of it has to do with where you happen to be located. here in NY the market is totally saturated. but there will always be room and work for the truly talented people out there. the trick is how you make yourself known amongst the competition. that is probably the most difficult aspect of freelancing in a large city like this. here's my little story, maybe it will spark some useful thoughts...
i studied graphic design in college and never paid attention to the web until i moved out to Seattle in 2000/2001, where i saw very little print work but knew a ton of people taking in an easy 50k/year just for basic HTML coding.
i came back to NY with a fire under my seat and went out and spent a bunch of money and time learning web design.
then the bust came and things got pretty ugly, everywhere. and since then things have progressed so rapidly, seriously the devaluing the skills of the intermediate web designer. i had expert HTML skills with a real talent for visual design but suddenly without PHP, SQL, XML, Flash and Javascript under my belt there was very little money to be made.
things have gotten slightly better for the NY web designer over the past year but it's still nothing like the "good old days". to understand better just take a look at the NYC Craigslist web design job listings. Craigslist is how i'd say about 90% of young people in NYC make their living, it's a resource that many people could not live without at this point. anyway, last year (and today to a degree) it was not at all uncommon to see an ad such as this...
"WEB DESIGN INTERNSHIP: Photoshop/Illustrator/Quark GURU wanted for growing, fast-paced e-commerce design firm. Must have expert-level skills in all Adobe software for print and web with expert Flash and Javascript skills, backed by a rock solid foundation of proficiency in PHP, MySQL, CSS, Perl and Apache technologies. Hours are Mon-Fri 9AM-5PM with flexibility to work some late nights and weekends. This is an unpaid internship with potential for transportation stipend after 3 months. Possibility to earn $10/hour after 6 months."
Web design (at least here) has completely become an employers market. Now that everybody and their grandma can "do photoshop" and can slap together a website the employers hold all the cards. Heh, I used to write these people nasty emails when I would see these ads, shaming them for taking advantage of talented people who spent a lot of time and energy crafting these skills and calling it an "internship" in the name of getting top notch work for little or no money. And it's a shame but everyone had to take part in order to pay their rent. So it just got worse and worse for a long time, although it does seem to picking up a bit now.
Personally, I went in another direction a few years ago and became an independent Apple/Mac technology consultant and also started up a small audio sound design/software company with a friend. However, I do take on some web design gigs from time to time if they fit into my skill set, which for web design doesn't go far beyond the likes of HTML, CSS and some basic PHP, with a nice looking front end. I can put together a very nice looking website that is functional and meets the needs of the basic small business. But for e-commerce or anything advanced I pass the work along to friends I have made in the business, and they do the same for me.
Back when it got ugly I made the conclusion that all the time and energy and money I was spending trying to keep up and make a buck in the web design game without pay could be better spent actually bringing in good money in another field, so that's what I did. Again, this is just my story and while it has worked out nicely for me it obviously isn't meant to be direct advice for your ventures. My advice would be to take a step back and get a good view from 20,000 feet up. Try to determine these things first...
-Do you want to work for yourself or for an employer?
-Do you want to serve clients in your area or nationally, globally?
-What level of market do you want to serve? Home, small biz, enterprise?
-What skills are required to serve those markets well?
-Are those skills realistically attainable for you given your location, resources, time, money etc?
-Where do you want to be in the field in say, 5 years?
Getting your head around these questions is a good place to start. For example, in my situation, I have no desire or time to become a high-end web designer. I have made that decision early on and was able to effectively market myself and pickup the skills and begin to drum up business that much faster. And I'm confident I can personally bring in a lot more cash serving the lower end of the market than I could by trying to jump in and serve the higher end, some reasons being things like faster turnaround, smaller scope, more jobs, less mission critical work (which results in less stress), more local clients rather than remote and a number of other reasons. Again, this is just me and based on my answers to the above questions I listed. Perhaps the next best step is to really and truly know your strengths and weaknesses and exploit them to the fullest.
Whatever you decide, I wish you luck. Sorry for the lengthy post, hope there is something useful in there for you.
