I think a local internet radio station will work. I think you can target a local audience, market to that audience and get local advertisers. Why would this be any different than a local radio station streaming?
National advertisers are not the way to go. You need local online mom and pop advertisers, especially restaurants and bars, to make things fly as a big chunck of local listening is your at work group that likely goes out for lunch or meets for a few drinks after work.
The is a huge hole here if you distinguish yourself. If you're thinking traditional radio in formatics, you will likely just be one of the bunch, but if your advertising concepts and interaction between listeners is 'out-of-the-box', you can blaze new frontiers and set standards. After all, the people we radio people tend to admire most and the stations that we elevated to legendary status did just that.
A couple of Low Power FMs have done this as they found their city was larger than their signal. One station even uses video streaming to add some spice to things.
My suggestion is find some cheap awareness building options to promote, some creative advertising ideas that go beyond the commercial and a programming choice that will make at work computer listeners want to bond with the big wide world out there and go for it. I have a few ideas I could share as I have been giving this some thought.
In short, a local 'internet only' station is wide open as far as what you can do. Internet stations seem to have not evolved beyond the ipod concept, so the playing field is wide open and the standard has yet to be set. Even the advertising concepts are new ground, so going after the little guy and making believers out of them iis the logical choice since the advertising agency driven buys take so much documentation and need so much assurance they can wow their customers with their expertise, I suspect national advertisers will be the last to 'try' a buy. The mom and pop is looking for ways to soldify their customer base and expand so they are more apt to get on board.
While internet only radio will play a more important role as time moves forward, now is a good time to start. From a business perspective, do you want to be miles beyond your competition when that day comes or trying to play catch-up. Ebay comes to mind here. Many have tried to do what eBay has done but they are lucky to gain 1 or 2 percent of the share because eBay is the heritage site that forged the road through the internet wilderness and is miles ahead of the nearest competitor. eBay was the one that saw what was coming, thought outside the box and created the standard their competitors try to duplicate.