Our house wasn't in foreclosure but it was fairly inexpensive and needed a lot of work.
We've been doing most of the work ourselves and we're by no means experts. Google has been our friend. We know people who are working on their homes (either DIY or contractor) and ask their opinion/how they're solving their problems.
If it's all cosmetic, I say go for it. If the house has deeper issues, I'd think about it.
We've been working on our house for almost 2 years now. We have done a lot of demolition and rebuilding. Every time we open something up, we find out it's a lot worse than we expected. One outer wall had to be completely rebuilt because it was rotten (part of the addition, so not a HUGE wall). We're taking 2 layers of siding off the house now and have found that the windows used to leak quite a bit and damaged all the logs underneath them. One area is a foot wide, 3 or 4 feet high and 1/3 of the logs deep. It's hard to see stuff like that. (The main part of the house is built with logs)
Everything always takes longer, ends up costing more, and is so much more exhausting than we imagined. Our roof leaked this winter so we hired someone to put on a new one (went with metal so it cost more but will last 40 years). Loved the guy so much we're bringing him back to do the insulation/siding so that we don't have to worry about whether we're doing it right or not. Because no matter how much we read up and learn, we always wonder if it's REALLY the right way. AND, it's exhausting to have to become an "expert" at everything. It's nice to just have someone come in and do it without worrying all the time.
We live in a constant construction zone. We have "good" rooms and work areas. But the good rooms aren't that great because often we have extra furniture pushed into them. I get depressed because our house often looks messy but I can't put anything away because it has to go into one of the construction rooms. It has become habit to rinse less used dishes when taking them out of the cupboards because we seem to always have dust floating around the home.
Actually, most of the construction happens during the summer and we take winter off to relax. Which is a nice way of saying we go into semi-hibernation because our house has been SO COLD. We're working on insulating it. Fingers crossed this winter will be good.
Anyways, by this fall our house will look great on the outside and most of the major stuff on the inside will be done. Next year we'll work on the basement (unfinished) and the "extras" outside: garage/carport, porches, decks? etc.
We see this as our 'forever home' and have put a lot of love into it. Even with all the extra money we're putting into it, it's still coming out cheaper than buying a 'better' house (which would still need work) and half the cost of a 'finished' house.
If I sound a little down about this it's because we're in the middle of DH's vacation and have 3 projects on the go. It will be worth it though. Actually, I can see taking a 5 year break than buying a small house in the college town nearby, fixing it up and renting it out.