Thanks for the input so far, it is helpful. Researching the 203K thing now. :)
To clear up a couple things, we have enough to buy the house outright if they accept our top bid but not enough to cash flow necessary repairs. It makes the most sense to me to get a mortgage with a low interest rate and use our cash to fix the place up. I suppose there are other options like a HELOC, right?
Our agent is sending me regular home listings and "distressed" home listings. Almost all the distressed homes clearly state that you need cash to purchase. This particular house came under the regular listings and at a regular market price without the "cash only" post script. That seems to suggest that the seller doesn't know the extent of the damage, or they're looking for a sucker or I'm overestimating the extent of the damage.
I can say I grew up kinda poor and I've been into a lot of rough homes in my life but I've never been in one before that had diagonal stress cracks above nearly every window in the upstairs. A quick Google search of low pitched roof damages led me right to pictures and descriptions identical to the ones I saw in that house. Apparently there was an ice dam at some point. It's completely fixable but costly, especially if we don't want that to happen again.
As far as livability for insurance purposes, I think the house is ok. The bathrooms and kitchen are all in good working order. Nothing is gutted or run down. Neglected, yes, run-down, no. The only electrical updates were done in the kitchen, laundry and ac unit socket. All other outlets are two-prong and ungrounded.
The realtor sent comps this morning. Looks like fixer-uppers go for $40-70 sq ft. We offered $30 to start, based on my research. Good houses are going in the $85-115 range. We won't be more than doubling the starting offer becasue I don't want to get in too deep and be unable to afford any surprises. I saw "Mr. Blandings Builds His Dream House"! ;)