toosmart - 4:20 am on Feb 26, 2012 (gmt 0)
I think that the Inc magazine article on Markus Friend from Plenty of Fish really put this entire model on the map. However, as more business moves to the internet it is becoming harder to establish a large enough user base to support it through advertising only, as even POF charges/up-sells for certain features. Dating sites are big business to the major players, who, like any other major players in any other industry, hire PhD's and spend massive amounts of money on inbound marketing. More specifically to your points: (1/2) advertising (and up-sells), (3) assuming there is, it would be for the same reason there is one Facebook: network effects / critical number of users, (4) No. Otherwise there wouldn't be as many competitors. Everybody is just trying to follow where they think the money is.
You might consider reading Chris Anderson's book: "Free: The Future of a Radical Price"