While the mark-up on Adult Toys is crazy, and I am sure it makes plenty of money, the problem seems to be in advertising. Let's say there are 3 Toy distributors. Each vendor buys from them, but there are 1,300 vendors total. All 1,300 are either listed in some porn network, or they use Google AdWords. After 3 days, my ad has not come up once. Why? Too much competition.
The other problem is that there is no where else to list my products. Because of the adult nature, I am not allowed to list on Ebay, Froogle, Amazon, Overstock, or anywhere like that.
Seems that if I were to pursue this, I would need to take the Old-School Video Store approach. They openly rent regular movies, but in the back they rent the porn. So, i would need to setup a legitimate store to be seen on the big boys, but also sell the toys in the "back room". This would allow someone to buy a blender with a vibrator. While this may seem kinda silly, I wouldn't be surprised if it worked.