There's more than enough demand to support a good-sized business mediating such sales.

However, there's not enough to demand to keep the shareholders of an IPO'ed company happy.

And there's the problem.

Considering that the strike is complaining about hike in fees - it doesn't seem like there is enough demand.

Is Etsy such a good aggregator, that setting up a storefront with Square is that hard?

Etsy has somewhere on the order of 100 million active buyers, searching Etsy for goods to buy every month. If you set up a storefront on Square, you start out with 0 active buyers, searching your storefront 0 times every month. Marketplaces bring tremendous value to small sellers.

So... Let me get this straight - they get a lot of customers off other people's work, but aren't willing to pay for the increased costs of providing them those extra customers.

These Etsy people sound like entitled brats.

The pattern with these sorts of Web 2.0 companies is grimly familiar now. They start promising more access and reach for small creators. They get a lot of small creators in the door with the ease of use and cutting out of the old middle-men. Then they implement a bunch of mechanisms to foster lock-in and fleece the small creators in ways that aren't much better than the old middle-men (though, admittedly, with more reach). It's like one of those fish traps you put in a current where the fish swim in but can't turn around to get away.