I have noticed that many of the houses I am looking at are priced $100k to $130k above the 2010 King County assessment value. Obviously, I would not pay the asking price. However, how much should I offer if the asking is around $480k and the assessment value is $360? This is on a townhouse by the way.

Will we be seeing properties adjust downwards to fall more into line with the assessed values? I ask because this is not the only property I have seen in this similiar situation. It seems many places have seen a 2010 drop of $100k.

Assessed values may be more or less than a home is worth - I tend not to pay them much attention.  There is ample discussion on this forum about how much faith to put in them if you want to search.  Nonetheless, an asking 33% above assessed on a townhouse would be a big red flag to me to do more research.

Your best bet is to value the home using a more robust method.  Also lots of discussion on the forums about this - you can start here or here.  If you have a prior sale on it, that can be a good starting point.  We are back to 2005 prices and I believe that we'll go back to ~2003 prices.

When was it built?  When and how much was the last sale?  Does it appear they did any major upgrades since last sale?