You've read my 1st thoughts, and you hear what BobF is saying. Obviously, we can't see it from here but it was good that you 'told us like it was' in your original post. With that, I could EASILY be pushed over the fence, and run from this house. If you were more than just 'handy around the house', I'd problably say you can take your chances. But since you're having to TOTALLY rely on your instincts AND your Inspector, I think you ought to go with what the Inspector says. Again, it's what you DON'T see that can hurt you. Are you going to ask the Homeowner if you can 'rip up' the carpeting? Just tell them the Inspection is causing you 'decision problems'. Maybe they'll get the message in that no one wants their home because of the problems they can see. Tell them that IF your Inspector (and you) are OK with what they find underneath (good or bad), you MAY still be interested in the home. This is to the Homeowner's benefit (as well as yours.) If I were you, but I'm not, but if I were, I'd listen to the Inspector. LIke I said, USE that $$$ to get Estimates for what you CAN see and perhaps for things you CAN'T see. Then, take this info to the Seller and negotiate. Actually, negotiate the price FIRST, THEN get them to deduct the Repair Bill.
Another thing is (then I'll let you go), the $$$ you spent for an Inspection is a whole, heck of a lot CHEAPER then the $$$ you may end up spending on repairs!!! To me, that's $$$ well-spent! (I say the same for having your OWN Real Estate Lawyer doing the closing; NOT the banks. Heck, do you think THEIR lawyer is looking afer YOUR interests??!) I could go on and on.
Look, my wife and I spent 6 months and we looked inside of, or drove by, some 135+ homes. We had 2 inspections (including the one we bought.) House #8 and House #135 were inspected. I know you're goo-goo over this home but realize that YOU are going to have to live there for years and years. And what if you have to turn around and sell it? Do you think you're gonna get your $$$ back??? Take a good look at the current Homeowners and put yourself in their shoes. Do you want to take the chance of having to be them?