LOL I wish I could promote myself here for tools. I spent a ton of time compiling over 550 of them :P. You need a keyword research tool (I use Longtail Pro), a self hosted website. (I use Bluehost for hosting although Ipage seems to have a pretty good deal going on) You will need an affiliate...
I would have built tons of small niche sites when it was extremely easy to get them to rank and each make several hundred to several thousand dollars a month. You can still do it but it's becoming harder by the day and eventually I'm sure Google will ban almost all of them.
Do Keyword research to determine what has the right amount of searches and competition for you. As long as the competition isn't to fierce it doesn't really matter what your niche is. The key to affiliate marketing in my opinion is to buy products that have affiliate offers, use them and then...
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