Which is better, main stream searches or tiny niche?

When we set up our website, we followed a suggestion of one of the Warriors here and used the affiliate company name in the domain name. We knew there was a risk, and if caught, they could make us take it down. Long story short, we've been caught and must take it down or find another solution.

We have a lot invested in time and effort with articles/links and we'd like to try and salvage as much as possible. Is there a way, possibly a redirect to a new domain/site that would work? That may not satisfy the affiliate, tho.

Second question: The niche we're in is very large. Since we have to set up a new domain name, what's the best approach? Some here say do keyword searches/evaluations and find a small slice of the big niche, and try to dominate the Google listings. Others here suggest the best way is to get in the mainstream, where the 150,000 searches a month are. Lots of competition but the site traffic potential is very large.

The first time around we went with the mainstream, simply because we didn't know any better. It is starting to build as we continue to write and send out articles, but 3 visitors a day is nothing to get excited about.

So we're thinking maybe this time we should try the small sub niche approach, with 400 searches a month but almost no competition. We'd appreciate your thoughts.
Thanks.