Sounds like a pretty typical collapse of a purchase in this market TBH.
We had issues in offers with people wanting to 'double discount'. We had one guy who wanted to do a lot of work on the kitchen and so said he was knocking £25k off the asking price to give him a budget for that work. We said that, funnily enough, the house had been priced based on the current state of the kitchen and that we weren't going lower on that rationale (we weren't hanging on for asking price, just not taking that much of a hit).
There seem to be similar issues with surveys. People act as if the house has been priced as if it were a hypothetical show home, not for its current state. So they think that they can get massive amounts of money off for things that are blindingly obvious when you walk in the house. Yes, negotiate money off for damp or woodworm. But if the windows are clearly old, draughty and in need of replacement, it astonishes me that people think that they can knock off the cost of a full set of replacement windows.
Of course people need to be realistic in this market and pitch their asking price right, but I think some sellers have got quite cocky about offering high initially and then shaving the price down based on the survey. That or first time buyers are buying bigger, more complex properties (having had to wait longer and so never buying that one bed new build flat) and are quite naive on their first purchase.