I want to name a new product with a name that has been TM'ed by another party. Much searching has revealed no evidence that the TM holder has actually used the mark in commerce. Other evidence suggests to me that the evidence of use in commerce is bogus. The Section 8 Declaration of Use is supported with an "advertisement" that is highly suspect (e.g, the photoshopped product image is not credible).
If I believe strongly that no one has ever legitimately purchased any of the other party's product, should I proceed to use my own, similar mark.
Put otherwise, how could a consumer confuse my product for the other party's if they have never seen the other product?
Given that I'm just starting, would prefer not to challenge the mark. Having a defensible position might good enough.
You say, "Given that I'm just starting, would prefer not to challenge the mark." But that is exactly what your are doing with your approach. If the registration is valid in the USPTO and the Section 8 was filed and accepted, an examiner will not allow you to register your mark if confusingly similar with the allegedly fraudulent, earlier registration. In that case, your only option to register your mark would be to file a cancellation action in the Trademark Trial and Appeal Board at the USPTO to cancel the earlier registration. Maybe the registrant won't defend that if they truly aren't using the mark but you're still talking about a legal proceeding of some extent, attorneys fees, etc. You are strongly advised to not try this on your own because there are a number of technical procedures to follow and legal issues that can snag you.
If the mark truly is not being used by the registrant, then yes, you do have an arguably defensible position and may be able to acquire rights in the mark but be careful about what you consider "use." A mark can be "used" on a product by being offered in ordinary Commerce and traveling through interstate commerce but not ever sold - at least sufficiently to earn that registrant some potentially defensible rights in the mark. If the mark is being used, or there was use, there is now a gap in use and the registrant can demonstrate an intention to resume use, the registrant may be able to maintain their rights in the mark.
Ultimately, any allegation of fraud to cancel the registration, or any claim of nonuse of the mark as a basis for cancelling the registration will require affirmative legal action on your part that you must pay for. If you simply use the mark without registration and the registrant claims you are infringing, you again must affirmatively prove your case that you are entitled to the mark based upon the registrant's alleged abandonment of the mark.
I think your only option with the least resistance and the least anticipated legal expenses is if you just start using the mark, acquiring use rights and the registrant takes no action and allows you to keep using the mark (presumably because they are not using the mark and don't care to invest in maintaining or defending it). But if this is the case, why couldn't you just approach this registrant, express your interest in the mark and see if he/she will 1) simply convey the mark to you; 2) voluntarily surrender it; or 3) issue you a consent to register the mark and use it (in that order of preference for you)? Even if you have to purchase this mark, you likely could purchase this mark from this registrant for the same or less money than an attorney will cost you to go through the legal procedures of alleging fraud or abandonment or defending your use/registration of the mark for same.
All said, you see that there are a lot of facts and strategy to consider and you really need to retain a qualified trademark attorney if you truly want to successfully and economically accomplish what you mention above.
There are some assumptions here that need to be examined before advice could be given. Are the products the same? If not, is the "new product" in a field that the "old product" might enter? Are the distribution channels similar? There are lots of registered trademarks that have multiple marks that are not confused with each other.
I know that money is probably at a premium, but you need to have a lawyer who knows this area of the law.