If you mean 'alowed' by Etsy, then no. Selling work that infringes on copyright is not allowed by Etsy. But, they don't screen each and every listing. And many people don't read terms and conditions of selling on Etsy before they start listing items, or they don't understand that what they sell infringes on copyright.
If you're asking if it's legal, the answer is 'it depends'. As Amy just said, it can depend on how different the new work is from the original.
People will list what they think will sell. If someone thinks Mickey Mouse iPhone cases will sell, they'll probably list them here without thinking about the fact that they're using copyrighted imagery.... until Disney sues them.
