Consult with your agent and make an offer based upon the current data, who cares what it's listed for. If FHA won't finance the house that tells me that there are repairs required so you'll need to explore other options. Obviously you need to be completely qualified and ready to close when you make the offer.
Fannie and other organizations holding distressed properties want them sold for as much as possible, as fast as possible to the most qualified buyers. I'm a Fannie Mae foreclosure appraiser and I hear this regularly from their agents. Get an experienced agent, write a strong contract, treat it like the business it is and don't let it get personal.