It's more like "with the same effort you could save thousands of starfish, just not the ones right in front of you" than "what difference can you make". Which is certainly something worth considering.
Without a lot of research that answer seems difficult to get to. I think in the interim, helping these people is a fine use of some people's disposable income.
Also, consider that money going to Watsi does not necessarily stop money going to a different/more effective cause. Many people donating to this may not donate to a different idea, and vice versa.
[1] http://www.givewell.org/international/technical/programs/ins...