It is not uncommon to find houses built in the 50's with ungrounded wiring. Mine is that way. 40A for your entire house? Not enough. I would definitely upgrade. I would get at least a 12-breaker, it doesn't hurt anything if they sit there unused.
As far as negotiations, I would get an estimate, and then ask them to either fix it, or take the price off the house. Another idea would be to try to get your inspector to deem it insufficient, and then you would have a little more leverage.
Does that help?
