MSN has an article summarizing considerations when buying foreclosed properties. Bottom line:
- you sometimes can buy at 30-40% below market...but most sell at 5% below
- buying directly from a bank is often the least risky way to buy a foreclosure and you often can get other perks viz.
- negotiated lower interest rate (if financing through lender)
- waived closing costs (including title insurance)
- low down payment
- auctions (even HUD auctions) can provide deals...but frequently do not.

My gut feeling is that foreclosures probably are not worth the work if you're only going to get 5% below market in most cases.