Two words:
Temp Agency
I know those places generally have bad reputations (and I've yet to find a company where it's not deserved), but they're an outstanding means to landing a decent entry-level (or slightly better) position. I have no degree and only three years of true professional experience, and yet I managed to land a position with a fortune 500 company as the sole administrator of a system that manages over $400 million a year in trade spending. I got the job because I busted my ass as a $12/hr temp for several months, made my connections within the company, and showed them what I was capable of.
Short of hard core programming, IT Help Desk, and network infrastructure positions, there are very few IT-related positions that do not require that you also have solid business skills and experience. For example, say you're applying for an IT job with a financial services company: You could be a much better programmer than the other guy, but he's going to get the job over you if he has a solid understanding of the financial services industry. The only way to gain the business knowledge and experience is to work in jobs that expose you to it; temp places are the fastest and easiest way to do it.
Stick with the brand names (Kelly, Volt, and Venturi, in my part of the country). Most large corporations will have an exclusivity contract with a certain staffing company...but for some reason temp agencies never advertize that info. Call each company for information, and make sure to ask who their big ticket clients are. When you register with the agency, state that you're most interesting in longer-term assignments with <insert major client here>, but you're willing to take short term assignments while you wait for a position to open. Remember that all of the agents get a commission of some type--they're not likely to cooperate with each other--if there is an agent who handles only one or two clients, ask for his or her name and send your resume directly. Treat your registration with the temp agency as an interview. Shirt and tie are a must, full suit is better. They reserve their best assignments for their best "associates" (temp agency speak for "peon") so the better your first impression, the better your odds are at landing a good assignment.
Keep in mind that most temps are human slugs...and most employers know this. If you show up early every day, work hard, and keep looking for more tasks to do, you're going to be Superman to them. Use every temp assignment as a networking opportunity. Take the time to learn more about the departments you might be interested in, and don't be shy about passing out your resume. Look for things you can do outside your official resposibilities that will help the business in the long run and do them (but make sure your official work is done at a better than exceptable level). Most companies in my experience open internal job postings to temps, so keep an eye on it and make your supervisor aware of what you're looking for.
It might take a few tries to land in a place that gives you the opportunity to move into the right position, but every assignment you take builds useful business skills. If you're stuck in a dead-end job with one temp agency, call another and start hounding them for assignments. They have no loyalty to you, and in return they expect none from you, so it's not a big deal to leave in the middle of an assignment. It's often crap work, benefits are usually non-existant, and the pay sucks, but you gain something that the rest of the recent BSCS grads with a 3.8 don't have: a foot in the door.
While you're at it, work on your resume. Keep in mind your audience: The HR analyst who reads it probably doesn't know the difference between a router and a modem, and has no understanding of programming. He or she does, however, know how to spot real business knowledge and experience. Make sure to include the technical aspects (configured Cisco routers, designed apps in C++, supported multiple office suites, etc.) for each job on your resume, but focus on the business applications of your work. The end result is that your core skills are still apparent on your resume, but you appear to be much more well-rounded; and the emphasis on non-IT skills and accomplishments will make each job you list unique. Add bullet points under your most important jobs listing specific accomplishments that went above and beyond your peers. Whatever you do, don't use a resume template. That screams, "I'm lazy!" and goes straight to the trash.
Practice interviewing. In my experience, just about everyone would benefit from this. If possible, find someone who can conduct mock interviews with you, and practice with the goal of coming across as calm, comfortable, and confident (not arrogant). Learn to answer the hard questions, like "What's your biggest weakness?" ("I'm not sure yet. I went into <last position> knowing that <insert weakness> was my biggest challenge. I addressed it by <list steps to overcome weakness>, and will meet future challanges in the same way.") or "What is your salary requirement?" ("I've looked into it, and the average salary for my experience level seems to be around X. In my last job, I was paid Y (Your actual salary plus 20%). I would assume that any offer would be competitive.").
Network. The days of getting a job just by posting a resume or applying to an ad are done for awhile. Hit up your friends and relatives; make sure they know you're searching for a job, and ask them periodically if they know of open positions. Subtly work your job search into conversations with new or casual aquaintences. Volunteer for a local charity or non-profit, and always keep a copy of your resume handy. The best jobs aren't advertised on the web or in the classifieds; you have to keep your eyes and ears open, and look in the less obvious places to find them.
To answer your original question, no, the economy is not *that* bad. Jobs aren't as plentiful as they used to be, but there are still plenty to go around. You just need to know how to look.