long story short, i bought a house for $75,000 and in my current situiation (had to move for work) couldnt sell my house for $40,000 if i tried. i have only had the house for 2 years and have no desire to keep it. what should i do? is defaulting on the loan really that bad?

It's a big problem for your credit score and your ability to buy a home in the future.  I suggest that you contact a HUD counselor in your area to discuss your options (it's free).  http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm