You are right on the money with your comments about market makers, bashers, pumpers, etc. However, there is one small point I would like to expand on. It is possible to short Bulletin Board, Pink Sheet, or NASDAQ stocks under $1. It is not easy as the stock has to have been hypothecated somewhere. This means that in the case of these stocks there is little short-selling, and there is frequently considerable competition for available shares--resulting in the appearance of many of these stocks on the Reg SHO list. The decision to let a client short these stocks is always a brokerage house decision (there are no SEC or NASD rules prohibiting it), and brokerage houses are very wary about letting clients engage in an activity with a potentially infiinite loss, which the brokerage house itself might have to make up. Thus, such shorting typically takes place with full-service, not discount, brokerage firms, and the margin requirements are brutal. Thus, such Bulletin Board, Pink Sheet and low-priced NAZ stocks never have a large percentage of their float shorted--despite the constant whinings on message boards. In fact, these stocks will frequently start failing with less than 10% of their float shorted, whereas a regular NAZ stock would typically require much, much more.
So, you were fundamentally correct--such short-selling is not a particularly important market factor, but it does exist.