A couple things. First, rarely (if at all in this market) do you get a dollar for dollar increase in value for improvements to the property. That said, the improvements you did most likely did not add $50K to the market value of the property even though that is what you paid. Now as for the appraised value dropping $40K since your last appraisal, yes....that is possible. Appraisers are all different (however, they should be fairly similar based on appraisal standards). If you pay for another appraisal, keep in mind it may come in even lower than the one you just had done that came in at $210K. As for appraisers using foreclosures (and short sales) as comps, that is 'allowable'. It depends what the market is comprised of in your area. In most areas these days, the market is mostly foreclosures and short sale. Appraisers have to use comps that have SOLD in the last 3-6 months within a 1 mile radius of the property.
Maybe you will break even or maybe you will be upside down shortly. You might get lucky and be able to sell for breakeven or it may only have offers at $125k.
In answer to your question, there is not limit on how much a home's valuation can drop in a year. The buyer's market will determine the price.
I contend that today's buyers are tomorrow's foreclosures. The real estate tragedy has just begun.