I took over the Aroma Tea Shop on Polk st for 3 months earlier this year. The biggest stumbling block was the landlord (a trust fund) dragged its feet and eventually denied my sublease application at the end of the 3 months. With a couple friends, we had been operating semi-discreetly during this time, but didn't redo the banner outside and didn't do much marketing.
Since we left, it's been taken over by the boutique next door. They kept the paint job and sandwich board sign we made.
That's about all I've got the energy to rehash-- but if you catch me in person I'll tell you all about the folly of Polk Tea.
I think the main problem is that retail can't (usually) move inventory quickly enough in such a coffee-centric nation. That, and tea is cheap to ship, so there are few downsides to buying online.
I've used http://www.specialteas.com and have been quite happy :) Haven't shopped around much, though they've been fresh leaves every time, so I haven't felt the need.
Finding decent tea can be a challenge. Here are a few places to start looking for tea online, and in SF:
http://www.teaspring.com/ -- Chinese Tea.
http://www.redblossomtea.com/ -- Chinese Tea from SF. Fantastic oolong and Dragonwell. Check out their location next time you're in Chinatown.
http://www.runa.org/ -- Guayusa, related to Yerba Mate. The kids building this company are true hackers!
http://www.omshantea.com/ -- A cool tea house in SF (mission). Learn about Pu-erh and Jiaogulan here.
http://www.yunnansourcing.com -- A place to try your luck and buy Pu-erh.
http://www.itoen.com/estore/index.cfm -- Sencha, Gyokuru, Matcha. A solid selection of Japanese Greens.
These places have great herb selections, and will make you realize how much you're overpaying for mid-grade tea: http://www.sfherb.com/ http://www.mountainroseherbs.com/
I also love Korean tea, but don't have a good recommendation on where to get it.