Your question is interesting, however, my opinion is you posted it in the wrong category, Agent to Agent or a Blog perhaps.
I think that as we see short sales drop off the regular or equity sales will pick up. Sales are connected. People who want to move up or move down and have some equity may not be able to wait for a short sale approval while selling their own home. Contingent offers are more difficult to get accepted in the REO and Short Sale listings, and then the others may have multiple offers. For sellers who have lost equity but can still buy this is a good time because even though they'll take a hit on their sell they can still make it up in the repurchase and lower interest rates.
As for when will we see more short sales, I've never liked them. And I would be very happy to see a more balanced market.
People who were willing to do a short sale have already done the short sale. Right now Real Estate prices are artificially depressed. People who do not have to sell their homes in a depressed Real Estate market will continue to hang on to their homes as long as the Real Estate market remains depressed.
When rpices start to rise significantly, that is when I expect to see more regular sales on the market.