Can a thousand fans sustain a band? If the band is smart, you bet. It doesn't matter the complexity of the recording or the amount of personnel in the band; that's a red herring. The only thing which matters is how wisely you spend your money and at this point, the largest expense any band faces at the moment is the cost of gasoline which is easily off-set by poster, sticker and album sales at the show which are very high margin.
Once again, any other point made by anyone is simply a red herring, trying to distract away from the fact that they either missed or out-right ignored the "1,000 fans" statement. The point here isn't that you can be a famous, rich rockstar off a thousand people; it's that you can survive solely off making music with a thousand fans. Studio fees have bottomed out; every good musician should have all the gear he needs before he tours (or make due). If you need some quick cash you record an EP and sell it as a "limited release" on the road.
Radio play and marketing are often the two most cited benefits of having a label and distribution. Yet all the bands on Swami Records (run by John Reis of Rocket from the Crypt), Touch and Go, Sympathy for the Record Industry and numerous other small labels have managed to survive without big label money and distribution. Some of these bands are more famous over in Europe than they ever could be in the States, and I guarantee they received no promotion or radio play. Dan Sartain even had an interview on German television; here he can hardly get gigs at real venues!
So, again, I think people need to pull their heads out of their asses and stop creating such ridiculous straw-mans: This guy isn't saying that getting those 1,000 fans would be easy, or that you'll be living like a Prince once you do. He's simply saying probably one of the most reasonable statements ever said about independent bands: find your niche, find your fanbase, treat them well and you won't ever have to work again. You might have to work harder than a big label band, release more music, come up with more creative t-shirts and knick-knacks and push them at your shows, but it is do-able. If you do those things, though, I guarantee you won't only have a thousand fans following you as word of mouth is still the greatest promotional tool any band has at their disposal.
Reverend Horton Heat are a prime example of this. They never stop touring, they know what pleases their fanbase and they never stop giving it to 'em.
Is his math probably a little off? Yeah, really, it is. Who gives a band a hundred bucks a year? But like most assertions, he's exaggerating to make a point. If your band is good enough to have a thousand "true" fans then you bet that there'll probably be a few thousand more that are just your fair-weather fans. "Oh, so and so is in town? Haven't seen them in a couple of years. I should get a t-shirt and a poster. They have a new album out and it's cheaper than at cd shops? Awesome! I'll pick one up." What do most musicians, nay, artists who are willing to put this much effort into their passion of choice consider "making a living?" I'd bet you every instrument I own that "enough money to pay rent, support the bands I like and eat better food than Ramen" will probably be your response.
Guess what? You can do that now working a part time (30 hours or so) job at minimum wage if you live with roommates and shirk a lot of the supposed "luxuries" that, really, most artists couldn't care less about anyway so it's quite amusing (and wrong) to say that a hard-working band with a thousand fans couldn't do it. Then again, this is a tech website, so I can't imagine there are a lot of knowledgeable musicians here...
I have a lot of respect for the commentators on this site but I have to respectfully disagree with your analysis of his comments, Will. You are completely right to point out that most internet tools can be used only for promotion, although I will say that many bands have had success with linking eMusic and iTunes (and even using the snocap tools) on their myspace or facebook profiles. I think you sort of missed the point and, as I've said before, are applying rules that really only have any right being applied to major label signed bands. Independent bands are free of many of the restrictions larger bands are; they don't have as large a percentage of ticket fees taken away by the venue or ticketing agency; minus overhead, merch is almost pure profit; managers cost less; etc.
Aside from this nitpicking I agree with a large majority of your points. Are most bands cut out for it? Not really. Are most bands smart enough to manage their money intelligently? Not really, but the Butthole Surfers proved in the 80s, without any hits under their belt, that you can buy a house, live in it and convert it into a record studio to keep band costs down if you choose. The Presidents of the United States of America had their hit and invested the cash into the same; a house with a modern studio in it, and as such keep their overhead very, very low. So, it is doable. But, I think your perceptions are exactly what they are: that of an economist coming from an agency which probably has little interaction with bands which Kevin Kelly's theories are aimed at.
If someone is more willing to work in a factory than tough it out in the industry trenches then I'd say they were never in it for the long haul anyway. Punk as a whole proves that Kevin Kelly's theory can work, easy.
You wouldn't have much of an article if you simply said "Well, he's one of those freetards (which he is), but he does have a point, even if it takes a lot more work than he thinks," now would you?