"Can people short sell Bitcoin like they short sell stocks in the stock market?"
One method to short sell is to personally borrow bitcoins, sell them on the market, and then buy them back later when the loan repayment(s) is(are) due. Of course, that's a naked short and nobody will lend you any significant amount of bitcoins without collateral or other assurances the lender may require.
Other methods include selling the BTC/USD futures contracts at ICBIT.se.
Currently they have a March 15, 2013 contract expiration, April 15th, 2013, June 15, 2013, and a September 15th, 2013. You can get somewhere around 10X leverage this way, but be careful at those higher levels as volatility can easily put you in a position where your margin is insufficient and you et a margin call (and see your positions liquidated by force).
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http://www.ICBIt.seAdditionally you can buy PUT contracts (or write CALL contracts) on MPOE/MPEX.
Coming soon are CoinSetter, Kraken and more.
