I don't know how it is over the States, but at least here in Sweden it's only "national" ads that I ever see on the news papers' websites. I wonder if it's too hard, too expensive or not useful enough for local ads on the web. In the physical papers it's mainly local ads, so the need and market should be there.

Might be interesting to look into this more; if technology is the only problem there's definately money to be made.