Can I sell items on Etsy using Bitcoin? What is the correct way for an Etsy shop owner to sell their items using bitcoin? Does Etsy even allow it? Will they freeze my account?
Etsy merchants that accept bitcoin have been tagging their shop items with 'bitcoin' so that a simple search shows what is available:
http://www.etsy.com/search?q=bitcoin

An email to support@etsy.com got this response about being allowed to use bitcoin:

"If you would like and are able to support a third party payment system, you are welcome to use another payment service."

They also included instructions for how to setup your cart so that people can easily pay:

"To do that, click Your Shop > Shipping &amp; Payment > Payment Methods. Select 'Other' as a method. Then, indicate which service you use in your Shop Announcement, listings and/or Policy Page. After the buyer has purchased an item using 'Other,' you can contact them with instructions and/or an invoice so they can pay through your preferred method."

Enable the 3rd party 'Other' checkout option, and when someone orders an item you can send them your bitcoin payment address.

You can also join the Etsy Team Bitcoin page, and there is Discussion threads for you to ask questions. The team page has information on the different bitcoin wallets you can use such as coinbase.com or downloading the reference bitcoin client from bitcoin.org.
http://www.etsy.com/teams/10366/bitcoin