Short sales are part of everyday Real Estate. I had a short sale close a while ago that took 8 month's. A typical purchase usually takes about 2 month's, so if you really want the house be patient. It does seem that the banks have all these toxic assets on their books but don't go out of their way to sell them.
Some banks are just overwhelmed with the sheer amount of short sales they have to process. To answer your question you can back out of any real estate transaction at any time before signing the closing papers.