Is the lack of a large formal dining area abutting the kitchen a huge
issue?

Not for me. I personally think that having a real seperate dining
room is a big plus. Its okay that its not next to the kitchen IMHO.

How about the lack of fireplaces?

I have a wood fireplace now.. I use it maybe 3 times a year even
though
I have over a cord of wood in a pile out back. Its just a big pain in
the
butt to use. Actually if I bought another house.. the only reason I
would want
one is that I like the look of a mantle over the fireplace (need a
place to
put pictures).

How about the lack of a garage? I view this as mostly a nuisance but
one that I am ready to put up with. I think this is currently priced
into the house but does the rate of price appreciation depend on the
presence/absence of a garage?

While garages are sweet.. most of the time they become giant storage
rooms. If you are prepared to wipe snow off your car and you dont do
your own car repair/maintence.. then you probably wont miss a gargage.
IMHO the rate of appreciation does not depend on the fact you have a
garage or not. Some people dont care about gargages..others demand
them.

The fact that the house has been on the market for over a year with
progressive price reductions with no takers scares us a lot. Why is
this house not selling?

Probably because it sounds like a small house in a bigger house
neighborhood.
Does it need a lot of cleanup inside? For some reason, 1/2 the time
people
cant use their imagination when buying a home. I am buying a home with
a
large mirror wall. The wife hates it, but she just cant imagine the
wall without it. Shrug..

Sounds like you love the house and property... Interest rates are only
going to go up. Go for it.