This just showed up on Freakonomics blog
http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&rd=1&item=130221609663&ssPageName=STRK:MESO:IT&ih=003
$55.71 for a $50 gift card.
A link to how much one would cost at a brick and mortar Target would add a lot of oomph to your story.
Ah, but factor in the cost of gas to go to the store and buy the card and that bidder probably got a bargain.
I use ebay to buy mainly video games that are out of print and pretty much unfindable. I’ve also used it to buy BPAL (perfume), as it’s a fairly established marketplace for the BPAL commodities market. 
For those purposes it works for me, because I can’t go to every Compusa/Gamestop/Best Buy/whathaveyou in a 50 mile radius. And for BPAL, the trick to trading on ebay is there’s a little more protection from ripoffs from both directions.
Again, it just depends. I just bought a Coleman cabin tent, retail $200something, priced at Amazon and other online retailers for $179.99, not available at all in any store near me. Got it, *including *shipping, for $140 on ebay.
But yeah, you have to do your research and you have to account for shipping. I really like the feature now that lets you input your ZIP code without bidding to find out what shipping will cost. Then it’s easy to figure out what your bid-up-to amount should be: Price on Amazon* - shipping on ebay - $1.00 = bid. Anything you get is a savings.
*Or your lowest retailer, natch.
Last year I sold a bunch of twenty-year-old computer games. One was sold to someone in Greece who paid $37 for the game and over $20 just for shipping. Recently I sold some Time-Life books and a Space Simulator Strategy Guide, and got e-mails from both buyers thanking me for the sales. So I guess they figured they got a good deal.
I’ve seen similarly irrational pricing at Amazon.com. For example, I found a Samsung upconverting DVD player listed by Amazon.com for $74.67 with Amazon Marketplace sellers offering the same item for prices both slightly below and above this. Why would I want to pay more to an unknown seller than Amazon is offering it at with free shipping?
Some sellers are institutional sellers that sell at virtually fixed prices, and some just have huge inventories like some large pawn stores that spend no time researching ebay market prices. They just throw crap up and hope some of it sticks.
I’ve bought stuff on eBay in the past at or slightly above store prices, because it enabled me to use funds sitting in my PayPal account, without ever withdrawing them to the bank - which was convenient for various reasons, but chiefly because it just didn’t have to figure in the household budget at all.
I’ve looked for one or two older prints of books that are reprinted and available in the shops. When EBay let you see who you were up against I was contacted by someone I’d outbid to be accused of sniping. I replied that I was after a particular print of book and not just a bargain as he was and was promptly forgiven as it were.
You can still get good deals on ebay. I play the World of Warcraft card game, and some ebay sellers are willing to sell boxes of cards that would retail for 85-100 bucks and you could maybe find someone discounting them to 75 or so, for 61 dollars after shipping. This price is only a few percent over the wholesale price, and after shipping costs (because all sellers charge more for shipping than it costs them to ship) the seller makes a total of maybe 5 dollars profit. They can get away with this because they’ll sell 500 boxes of cards where my local game store will sell 20 at MOST.
For lots of stuff ebay is useless, but for some things it’s awesome. I wanted to try running an ethernet cord through the computer room and my son’s bedroom to the Xbox, and I needed a 40 foot ethernet cord to do it. Frys didn’t have a cord long enough, but ebay had hundreds to choose from. Older movies that you can only find at yard sales or used DVD places are hit-and-miss great bargains if you want to buy them locally, but ebay is guaranteed to have it, and usually for only a few bucks more than if you had spent hours scouring swap meets and gamestops.
I’m still a big ebay fan. 
Not to mention that those of us outside the USA are used to paying a huge premium on certain items, so finding something we want at a slight premium is worth it. Case in point: I recently bought a new fashion watch on eBay. Regular US price: $55. Seller’s buy-it-now price: $29.95. Plus $20.95 shipping to Canada. Rip-off, right? Except that the watch costs $109 Canadian (about $107.50 US) here, before taxes. (I checked the one local department store that stocked that brand.) An American wouldn’t be getting much of a deal from making that transaction, but I sure am.