None of us on Trulia.com have a copy of your contract and none of us should have a copy of your contract. That is between you, the seller and your mutual agent.
The mutual agent is where I sense a problem. You do not seem to have been counseled very well by the agent in regard to the workings of a short sale. Your questions are legitimate questions that should be answered by an agent who is representing you and has your best interests in mind. I do not know if that is true of your mutual agent.
If you do cancel this transaction, I suggest that you get your own agent to teach you the correct steps of buying a house whether it is short sale, REO or normal sale.
Yes, it is written to the Title Company.
Yes, you should be able to back out now; you won't have to demand your deposit, just ask the Agent for a CANCELLATION notice.
When you make an OFFER you should already have a a good idea of the repairs neeeded.
No, you should not do an Inspection until to have a Contract,
Yes, you should have your own Buyer's Agent working for you!
Good luck and may God bless
Regarding your Title Company check, the offer that you made on the contract states that the Earnest Money Deposit check should go to the Title Company within 2 days of the contract execution meaning both you and the seller agreed to the price and terms. Did you request an Option Period? I certainly hope you did because if you did not you could potentially lose the Deposit that you are putting in.
Call me. I want to find out what is on your contract so I can guide you better.