I see where Dan's coming from, and can't argue with his definition of all those lovely terms. Still, I come at it from a different angle:
A starter home is what a lot of first-time homebuyers should have been buying in 2003-2007. Something within their means. Affordable, Decent sized for 1 or 2 people. Probably similar to the home their parents had bought 30 years earlier. Something they'd probably be able to sell without much trouble to another first-time homebuyer in 4-6 years.
Instead, a lot of first-time homebuyers bought way outside of their means. Something their parents never would have been able to afford. Able to house a family of 6 or 8 people. Something they knew--if they'd thought about it--that they'd only be able to sell to a greater fool (the "greater fool" theory) in a year or two.
As for short sales and foreclosures being considered: Well . . . . technically they can. I know plenty of starter homes--3 bed/2 bath that were selling for $150,000 in 2003 that sold for $500,000 in 2007. They're now back down to about $150,000. And they'd be fine starter homes. But I'm not sure I'd want to subject a first-time homebuyer to the agonies that accompany many short sales (and some REOs).