Your friends situation is typical for short sales. Most of the time the bank does not set the listed price of these short sale homes, the owner and their agent dream up these prices to promote offers. They then "HOPE" the bank accepts it or counters it with something close, but as your friend has seen they sometimes come back with what they want and it might not be close to what the owner has dreamed up.
Banks will let it go to foreclosure, they won't think twice about it and you need to understand that banks are not like you and me with our money involved. They would often rather let the house be foreclosed and get the owner out of the picture and then they can sell it as a bank owned home at the current value of the market. Reasoning with them about taking this rather than letting it go to foreclosure is a waste of time, banks don't think like that very often and they have procedures they follow and they are not always rational ones you or I would do. Love those short sales.
This is what a friend of mine was trying to do. Purchase a short sale home in cash and in the full amount the lender was selling it. The lender then counter offered for a ridiculous amount and up'd the sale of the home so the buyer said no and the bidding stopped. That leaves the home owner, buyer at a stand still. There is no one else looking or bidding on this home either. Would the lender prefer to have an empty house cause that is where the home owners are headed, to having it foreclosed.
And to answer creative financing- this would be methods like asking the seller to finance the home, or buy their mortgage, etc, etc.. basically anything (legal) you can think of to gain financing.