2) In-App Purchases come in 2 flavors: The kind that are permanent, and the kind that aren't. Apple doesn't tell you which one you are buying, which means that I just don't buy any, generally.
3) The few times I experimented with IAPs, my conversion rates were also total crap.
Making niche games actually strongly resembles more "serious" software products, because you have a group of potential customers who have a decent idea of what they want and a market that isn't providing it. If you're lucky, you'll find pages and pages of forum posts describing the sort of things they like.
Expecting to make the next Angry Birds is stupid. But making games with the expectation of a decent income is entirely realistic, and just requires the same marketing skills as anything else.