Hello Risa, welcome to the ABW forum board!
I might have missed some very important elements in my response, but I am on cup 1 of my coffee .. so forgive any oversights.
Here's my quickie responses to your questions:
1.) No, not at all. You may have found a possible great niche zone as long as you can get a product line for this area. It is also possible to start selling as a merchant / drop shipper. You can create your own niche zone with some fore thought.
Rule of thumb: Don't worry about what other affiliates do & don't sell. What works for them, may not work for you ... and vice versa.
2.) This is a problem for many affiliates. The visitor may very well be interested in multiple merchant products ... but the checkout process can be cumbersome when the purchaser must go through multiple payment carts to process individual product orders.
The loss of the customer is part of the business if your accepting the merchants general terms. Some merchants will stamp "new customers" as yours and provide a commission for any further sales made from the "new customer" for a period of time. Otherwise, you need to bring special value to your site that will inspire the customer to come back to your site and make other purchases. However, some merchants won't allow a "former purchaser" to incite further commissions for a designated period of time, while others will allow it.
3.) My experience in trial & error testings have always lead me back to adding "content" oriented material to enhance the product information. You could make a cut & dry "sale site - look & feel" ... but I would add an "information" type of link that will give those that want more details the information they need or want.
As far as SEO. If your links are all pointing outbound to various merchant sites and you have no real content, don't expect any good keyword density weight frequency rating to give the search engine bots the food
they need to index you.
4.) This question is a loaded question. There are so many variable factors that must be weighed into the equation to provide an answer that could even be remotely close to the answer you seek. The product(s) need & demand can play an instrumental part in this equation. The site layout and the "call to action" format can also play an instrumental role.
The time needed to test various methods can be very time consuming. However, the rewards can be very fruitful if you find the perfect meld.
5.) Many webmasters make niche websites for the purpose of targeting products without clouding the visitor with a "this & that" site, in addition to being able to get "keyword density weight frequency".
6.) Drop Shipping generally provides a much higher profit return. The visitors are usually YOUR customers who come back to YOUR site for support & further sales. This greatly covers the issues you asked about in question #2 and creates name brand awareness for your service. You are also able to create your own affiliate program with a drop shipping