Just Looking, an abandoned house next door always has a chilling effect on your potential buyers. Call the Mayor's office to ask if they would consider buying up some of the abandoned homes you mention.
They have announced they are thinking about doing that. Remember, rehabbed homes pull up the values of the neighborhood as well and make it more attractive. You seem to imply quite a lot of rehab going on there. Contact your Realtor and ask for a comparison of price per sq ft pre-rehab solds and post-rehab solds. Remember to get the average days on market for each category for 2008 and same time 2007.
Ask the Realtor what kind of repairs were put into the homes that sold. Finally, don't spend more on the rehab than the return indicated by your Realtor's market study. If you do that, great. I am a big advocate of renovating our existing housing stock. Also - pretty sells, appliances sell and garages sell. Hope this helps.