Can small blogs make real money?

So, Jason Calacanis is griping about PayPerPost, a new service that matches advertisers wanting links with bloggers willing to provide them. I imagine that it is easy for Jason to gripe. He has such a huge audience that he could probably make real money by just throwing up a few Google ads on his site.

But what about smaller sites like kottke.org or smaller sites still, such as TreeDazzled? Can these sites ever make money. I imagine that the money coming from a service such as PayPerPost will be very small indeed and even that from Google ads close to negligible. I have the impression that half of the advertisers on PayPerPost will also be bloggers, and vice-versa. In other words, a lot of the bloggers making money there will be pouring it back into the system.

Can any readers provide guidance as to how much money a small blog can make, and where this revenue comes from?

Link: More on the PayPerPost Debate (or "Tim Draper where are you!?!?!) - The Jason Calacanis Weblog