As someone who has bought/sold over a half a million dollars (probably more) worth of stuff on eBay in over a decade of using it (Since September '97), and with as many issues that I have with the current status quo there, I have to say that the actual instances of shill bidding are probably a lot lower than you'd think.
eBay watches very carefully for it - a while ago when Best Offers were first introduced, I wanted to see what the buyer saw when they sent me a BO, so I sent myself a BO for $1 on a $1,000 item. As a result, they closed my selling account, my buying account (I keep one account for each), my wife's account and my brother's account! Apparently he had checked his auctions at my house once and they'd associated my IP address with his account. Ultimately I got all the accounts re-instated, but based on how quickly it happened, I suspect that it was automated, based on IP address. Obviously, they can't do anything about coordinating with a friend/associate in another place, but I do think this is a priority concern for eBay.
Also, from a buyer's perspective, sniping is a great thing - in regular format auctions, the more bidders on an item, the higher it is likely to sell for - each bidder seems to have this idea that if someone else is willing to pay X, then X+$1 should be reasonable too. With sniping there is a lot less action on the auctions and the ultimate prices are generally lower.
Yes, you might have been outbid by a sniper, but the sniper had a maximum dollar amount that was simply higher than what your maximum bid was. You didn't lose - someone was simply willing to pay more than you. It wasn't really any different than if they had put that bid in 2 days earlier. (Assuming that you had put in the maximum amount you were willing to pay.)
As far as using a software program or whatever to do your sniping - let's say you have a broadband connection and the other guy has a dialup connection (yep, there are still people that do!) should you have to throttle your connection back to match the lowest common denominator?
If eBay was really concerned about sniping, they'd introduce extended auction times, whereby each bid extended the auction by some set time. So, if an auction ends at 2pm and someone bids at 1:58, the end time would become 2:08..etc. (Bids earlier than 1:50 would not extend). There are a few auction sites that do this - personally, I hate it.
All that said, if there was an effective alternative to eBay, I'd leave eBay in a second. Overall, the eBay experience is a far cry from what it used to be.
It's always nice to put a face with a name
