The CPSC has just issued a one-year stay on testing requirements for the CPSIA. This means, people can keep selling! However, they are still liable if they do sell anything that doesn't meet the limits:
Manufacturers and importers -- large and small -- of children’s products will not need to test or certify to these new requirements, but will need to meet the lead and phthalates limits, mandatory toy standards and other requirements.
The good: etsy can live on! I can finish off those baby blankets and try to sell them (except, I think, for the one with metallic fibers....). The insanely expensive testing is suspended for a year -- and during this year, perhaps Congress can modify this law to make it work.
The bad: this could make the movement to fix this lose steam, if people think everything is fine, and we'll all be back where we are now next year. And, no-one is completely off the hook, even in handcrafts:
Handmade garment makers are cautioned to know whether the zippers, buttons and other fasteners they are using contain lead. Likewise, handmade toy manufacturers need to know whether their products, if using plastic or soft flexible vinyl, contain phthalates.
It looks like anything painted still does have to be tested, along with a handful of other things. I'm pretty sure that was required already, however, so won't change anything.
A good and cautious analysis is up at ZRecommends.