First thing I check is to see that the owner has the box and all original materials. If they do, I get a better feeling about the purchase as these owners tend to take better care of their devices than those who just keep the phone and charger. Not a rule, just something I've noticed. I also ask them about the device, what they liked/didn't like, what else they own, why they're selling, etc. Gives a general feel for them as a smartphone user, and you might find someone locally to geek out about phones with. ^_^
IMEI on box and phone should match; if not, ask why. If phone was exchanged at the Device Support Center, I'd either ask for a significant discount or pass. These phones tend to have a higher error rate, and especially with the Focus being first gen hardware. I'm speaking from experience.
Check for any signs of dropping or tampering on the outside of the phone and inside the battery compartment. Check condition of connections; should be clean. If you have a microSD card, slip it in to make sure the slot isn't damaged (Remember you'll have to hard reset the phone (it's in Settings > About) for it to recognize the card). Hold the phone solidly and give it a few good shakes to check for rattles. I also twist the phone lightly to make sure there's no flexing. The battery back has pins which break off if you remove the cover a lot. Not a major thing.
Make sure your SIM works in the phone (obviously).
Power cycle the phone and give it about 10-15 seconds after it hits the home screen for background activity to hit "normal" levels.
From the dialer, dial ##634#. From there, go to the app list and go to Diagnosis. On this number pad, dial *#0*#, and run through all the tests. *#05# is another test screen, but I think all or most of the tests are in the first menu I gave. You can also dial *#06# to check the IMEI if for whatever reason you think the IMEI sticker may be invalid.
You can still test things a bit more casually --
1. Touch screen should be responsive. With clean hands run try swiping the home screen up and down, and left and right. Should be responsive everywhere. Should also be free of dead pixels (see the display test in the first diagnostic test).
2. Play music through speakers and headphones at all levels
3. Make calls, use data. Make sure both you and your caller can hear one another comfortably. Stream some videos (channel9.msdn.com videos will work without plugins). Also test WiFi and Bluetooth to make sure they'll connect and transfer data (make a call via a Bluetooth headset to test it).
4. All buttons should work with smoothly and without fail, particularly the physical buttons on the side which are more likely to fail in my experience.
5. Obviously, it should charge via the adapter.
6. The GPS and compass need to be checked. Can't remember the app I used to test these two.
7. Check for burn in; there's an app in the marketplace that tests for this but the name escapes me. It also does a basic hardware test IIRC.
It's best if you have a laptop or netbook with you to test the USB connection especially if you've got Zune already installed. See if the connection drops if you tap the phone (possibly loose connection, possibly using a third party cable).
I'm probably missing some things as it's late but that's a general rundown. Some of these tests might be redundant, and none are scientific, but that's more or less the process I've used.
Edit: Also, it should come with Nodo installed (7390 or 7392; Settings > About > More info > OS version). If it's a different version, ask why. I can't imagine anyone having pre-Nodo, and if you've got the Mango beta on it (7712 is one of the later builds), you can't upgrade it to the final version of Mango without first flashing it back to a retail release. It's extra work that you may not be into investing.