I am a real estate attorney and I do a lot of shortsale work for clients both for buyers and sellers. A couple of quick comments:
1. Normally when we take on a buyer for a short sale property we institute a "contract cancellation" date, so that we don't have an contractual entanglement, I am hoping this was done for you. This would be a date that if we didnt have an answer from the lender , the buyer could cancel the contract and receive the return of the earnest money.
2. Believe it or not the record time I have waited was 7 months for approval. I will withhold who the lenders were, but it could still happen. The typical time is around 3 months to get approval and move the transaction forward.
3. You may want your attorney to confirm that the house has not already gone to auction. If it has been scheduled for auction, but delayed multiple times, that is a hopeful sign for you, although not conclusive.
4. We have not seen alot of success with price reductions, but as Eric points out, it often depends on the who the lender is, the ability (and competence) of their loss mitigation department (also might be called a special assets department - depends on the lender), and the communcation that has been fostered with the bank.
Let me know if I can help in any way.