I don't really sell many handmade items, so feel free to discount my comments.
But I do buy them.
Rather than moving handcrafted items to a top level category, how about adding handcrafted as a "brand" and/or sub-category in each area i.e.:
Porcelain, Pottery & Glass >> Pottery >> Handmade
Clothes, Shoes, Accessories >> Designer: Handmade
etc, etc, etc.
And as an aside: it would be great to be able to search by brand/size and color when the seller takes the time to input the information.