Would a deed in lieu be recommended instead of a foreclosure?

yes, inasmuch as a deed in lieu is generally a shorter, less painful method by which you can transfer ownership of the property to your lender. lenders usually go for this because it saves them thousands of dollars in legal fees, advertising, lost interest, etc. not to mention tons of time.

the effect on your credit is going to be similar but the agony of going through the foreclosure process ought to ameliorate that.

What about all the appliances in the house...should I sell them or are the required to stay there?

it'd be nice if you left them there, but i can understand why you'd be reluctant to do so. after all, you might pick up a few dollars by selling them. i'd ask a lawyer if you have one, just to be sure you're not in violation of any statutes in that regard.