Cragislist has been there, since long. A next generation product in terms of technology, in terms of value addition to consumers, in terms of use of user experience I believe is the need of the time.
How do fellows over here, think about the problem?
How would you go about fixing Craigslist?
What are the troubles you face in Craigslist, and what is your idea of the next generation Listing site?
Personally I wouldn't even try. They're too entrenched as the defacto online classifieds provider to the United States. Like eBay is to auctions.
If you _were_ to defeat them, you'd have to do something like find a way to get orders of magnitude more eyeballs onto each ad somehow. I'd guess that distribution channels would be your best bet in terms of implementing a net improvement. How to do that I do not know, but its my guess that that's the way to add value to the space.
Maybe work out a deal with all the major newspapers' online departments to mirror all the ads on your site on their classifieds sections, so no matter what newspaper someone is reading, your ads are there. But that's a tall order in itself.
You have your work cut out for you that's for sure. Good luck!