There's always the issue with how well stuff sells. If you can AH your cloth at 20 gold a stack, but you get undercut a lot and you'll have to re-list it constantly, it can be better to just craft bags if those sell more reliably. Even if the cloth ends up selling for more, it can potentially cost you a lot more time to sell it all.
In the case of small realms, you might not even be able to sell all your cloth if you farm a lot of BC raids/dungeons, no matter how hard you try.
There's more to it than just the gold value. From a gold making point of view, even considering spending time on Netherweave cloth is a gold loss. With the price Netherweave stuff sells for, you're better of doing just about anything.
Personally I just vendor whatever Netherweave I find and if I have the desire to sell some, I'll craft some with the several hundred cloth and bolts I have lying in a bank somewhere. Vendoring at this point is the most time efficient thing I can do with it, especially in between dungeons/raids when your bags are full.