Some good comments here, Patti's in particular, but I think many of the others miss the point of the question. Eric's right: If there's a foreclosure two doors down, and they're similar units, both in the MLS, then that's competition. And, as with any other situation, you have to stand out from the competition.
Price: You may not be able to price yourself lower than a foreclosure, but--on the other hand--I've seen foreclosures come on the market that were no bargains...even leaving aside their condition. So don't automatically assume that the price point for the foreclosure will be so much lower than yours. I've seen situations in which a property bought at the peak of the market for, say, $600,000, comes back on the market for $500,000. Ugh. However, a neighbor may have bought 6-7 years ago for $250,000. Meanwhile, prices have fallen in the neighborhood from the peak of $600,000 to around $525,000. Ugh, again. The neighbor may wince at putting his property on the market for $525,000--or slightly lower to compete with the foreclosure. But he's still coming out ahead and he's generally competitive with the foreclosure. I'm amused at all the postings on Trulia of people who are looking for foreclosures, presumably because those are "bargains." Not all of them are.
So, getting past price, consider condition. That's already been raised, but it's valid to mention it again. Some foreclosures are in poor shape because the former owners trashed the place. Even when that's not the case, I've seen many foreclosures that ended up that way because people bought fixer-uppers near the top of the market, began gutting the place, started rehabbing, then ran out of money. Meanwhile, the market tanked. So the foreclosure has no kitchen or baths. Now, not all foreclosures are like that. Some are in pretty good shape. Still, they're vacant, they've been winterized, they have that vacant, empty feel. You go in and they smell slightly stale. With the heat off, or turned down, they're chilly. You compete with that by making your home comfortable and inviting. Consider having it staged. Take care of the outside, too. Many buyers, even those who claim to be interested in foreclosures, have little imagination about how a place can look. That's the value of stagers. Make sure your place looks great.
Then, make it easy for someone to buy. When a lender is involved--either with a short sale or a REO, it can get long and complicated. Promote your property--have your Realtor promote it--as easy to buy, quick decision, no complicated decision process. Remember: That's not competing on price; that's competing on ease of purchase. That's appealing to everyone, but especially to people who might have been advised (correctly) to sell their old house before buying a new one. They're operating under time pressure. And that works in your favor, both because you can close quickly and because they may be willing to pay more for the assurance of a successful close. That will definitely give you an advantage over your competition.
And make sure your Realtor is aggressively marketing your property. Just a personal observation, but most foreclosures aren't marketed that well; they rely on the "magic" word "foreclosure." A lot of people aren't looking for foreclosures. Sell the strengths of your house. Bring in buyers who aren't looking for foreclosures. Maybe (depending on the strengths of your property) they're looking for a large lot...or a new kitchen...or lots of storage space.
The one thing a foreclosure may have going for it is price. You've got a lot of other cards in your deck.
Hope that helps.