Wow, I didn't do a lot of things when I bought my car (no mechanic check or carfax). I guess I'm lucky or just had good instincts to trust.
I brought someone more knowledgeable than me to check the car out with me. We made sure nothing was leaking, brakes and tires were in good enough condition to test drive, there was no sign of past accidents, no badly matched or "orange peel" textured paint from replacing body panels. I was looking at Focus station wagons, so we'd lift up the carpet in the back and make sure the metal structure under the bed didn't look like it had been altered or re-welded (a sign of being rear ended). For a standard transmission car, I made sure the clutch felt good (meaning it doesn't engage the second you hit the pedal -- this might mean it needs to be replaced soon). I also checked all the fluids, no leaks, and the quality of the oil to verify their claims of keeping the maintenance up.
What I wish I did: Check their photo ID against the title, double check the VIN on the car against the paperwork, made the owner get a new title before paying them (they had lost the paper, so it wasn't under lien but I had to pay $40 to get a new one mailed to myself and wait forever at the DMV). Take the car on the highway (I only got up to 40 mph but it felt great).
I paid 4k cash because I didn't want to go to a bank with anyone and wasn't going to buy any cars with loans. Anytime I buy off craigslist, I always ask why they are selling it. How they answer that question tells just as much as what they actually say. I ended up buying my car from a family who had just bought something newer ("safer") for their kids and priced it to move quickly. I saw the new car in the driveway so it seemed reasonable.
FWIW, check out some forums about maintenance on the Ford Focus (focusfanatics, etc). I think second generation Focuses are a lot better, but make sure the cars are not leaking oil around valve cover or leaking coolant from the thermostat housing. I fixed both of these on my used 2003 Focus wagon at 90 and 100k miles. It's very common on first gen Foci.