I will tell you a little story from yesterday:

I opened a Bitcoinica account and played with it. Then, suddenly a big spike to 7 occured. My immediate thought: a very good opportunity to attempt a short sale, because 7 is at the moment not sustainable.
so i attempted to sell bitcoins @ 7. this is what happened: ( you have to read it from bottim to top)

BTCUSD   Market   175.0   -   Forced liquidation @ 7.4300559927762   Sep 11 04:17 PM   
BTCUSD   Market   -50.0   -   Executed @ 6.9769   Sep 11 04:16 PM   
BTCUSD   Market   -50.0   -   Executed @ 5.9849   Sep 11 04:09 PM   
BTCUSD   Limit   -25.0   $5.6900   Executed @ 5.9846   Sep 11 03:59 PM   
BTCUSD   Limit   -50.0   $5.6900   Executed @ 5.9846   Sep 11 03:59 

The first mistake was i assumed i could actually sell at 7. But the spread was over 1 dollar, so i shortsold at 6.

yes, i was the sucker to buy coins at 7.4.

the second mistake: had i provided enough liquidity i could have made a nice profit by now. but i underestimated the 1:5 margin.

I am also playin around over there but with 10 usd to start. Blew 5 bucks quickly testing things and now did my first trade to make money. Made about 30 cents with 5 usd as capital. Still some quirks i am trying to figure about the spreads, delays, etc. I am yet to be comfortable that i fully understand the site and how to use/trust it.

I'd like to learn more also

Short sale:

Borrow 10 apples
Sell them for $10 total @ $1 each
Price goes down to .50c each
Buy 10 apples back for $5
Return apples

$5 profit.

Or, apples go up to $2
Buy 10 apples back for $20
Lose $10.

A margin call is when the lender forces you to buy them for a loss because you wont have the cash to buy them back if the price goes any higher.

Funnyyoumentionthiscausei was goingto make a transactionduringareallyslowperiodtofind outifthyeactualybuyonmtgox,
And yes iamtypingthis on a tablet forgive me

First of all, make the large assumption that bitcoinica actually buys and sells coins on mtgox and is not a bucket shop.

You can wait as long as you like. As long as the price does not swing in a direction that totally screws you over.

It appears the OP wanted to short. But, like I, when first using the site you have to look closely at the spread which is
quite large, time delays involved in their website updating, and making a mistake with their web interface due to interpreting
things wrong. OP wanted to short at 7 but the bid was still sitting at 5.69. And this is when the price of bitcoin was 7!

So BOOM. 3 transactions shorting a 125 BTC at 5.69. Terrible move with the price at 7. Already in bad shape from the get go.
The person then realizes the mistake or tries to correct it when the bid moves to 6.97 on the website. Shorts another 50
but this time at the price they wanted.

Sadly.. bitcoin shot up to 7.43 during this time frame. When your net value falls below twice your maintenance value.. they
instantly liquidate your account and you pretty much lost your money.

If the person added more funds... they could have kept the position alive because their maintenance value would have
increased. For every 5 USD you add, your maintenance value is 1 USD.

Here is my trade I played with earlier. I had about 5 bucks in the account.

BTCUSD   Market   -3.0   -   Executed @ 6.0627   about 4 hours ago   
BTCUSD   Market   3.0   -   Executed @ 5.9751   about 6 hours ago

I bought 3 BTC@5.97. Keep in mind I only had 5 bucks in there.. so 25 dollars to play with.
I waited a couple of hours and my bet the price would go up did happen. I sold at 6.06 and made about 9 cents
per BTC bought. Thus about 30 cents if I round. So, what is that? 5-6% profit I think.

If you short it, who is taking the long position?  Is bitcoinica itself doing this (eg being a market maker)?  If so, how do I know they'll be able to cover their position and not go bankrupt if the bitcoin price collapses?

I guess if they match the shorts with longs, they wouldn't stand to lose money if the market either skyrocketed or crashed.

According to Bitcoinica, they hedge their positions.  So, Bitcoinica buys it from you, then immediately sells it to someone else (either their own bidders or on MtGox).