A good friend of mine asked this question also. I think he wanted to go head-to-head with brands like TapOut and beat them at their own game. Whether it's a $100 company or a $100M, trying to occupy the same niche is folly, IMHO.
In the software startup world, I would be hesitant to put my time an money into any product which I don't understand well enough to attack from a unique angle. Unique enough to give the users of other competing products a new and appealing choice.
Think of tee-shirt design the same way. If A.) you've spent a long time working and making designs that only you can uniquely offer, and B.) those happen to be appealing and marketable and fresh in some way, then no, the market is not saturated.
Don't let the fact that you would have competitors stop you from giving it a try. At the very least you'll learn a few things.
There are many ways to succeed, despite competition, such as:
As far as profits go, that depends on your business model and the decisions you make along the way. Threadless did 30 million in revenue for 2009. Zazzle did 80 million in revenue for 2008. Youdesignit did 1 million in revenue.