I don't think it's deceptive advertising. When you made your offer you were told verbally that the homeowner either needed to get a higher price or they would be in a short sale situation. That IS a disclosure of sorts. There should have been a seller's disclosure document, however, and the condition of the home should have been fully and honestly set forth in that document. In addition, if the repairs were easily discovered by a simple walk through of the home, that too is a sort of disclosure.
I guess we could call this a cautionary tale. Never allow yourself to be pushed into making an offer that is higher than what you really, really feel the home is worth, particularly if there is no 'wiggle room' to account for any issues uncovered during the home inspection. Second, read the seller's diisclosure carefully and do a careful visual inspection yourself before making your offer or accepting the seller's counter offer. And, third, if you feel there is no room to negotiate home inspection issues, then base your offer and counter-offers on the worst case scenario.
If you still like the home, and are willing to wait, then insist on a credit toward repairs and if it throws them into a short sale situation, so be it. I have a feeling they will end up in that situation anyway. Otherwise, walk away and chalk it up to experience.