But, why isn't THIS selling...?

I think you answered your own question. 5th floor walk-up. You're appealing to a small market of people who are willing to deal with that. Also, both bedrooms are small and you are losing a lot of usable space with that long hallway.

It's almost $800,000, is a 5th floor walk-up, has an awkwardly shaped small second bedroom and only a 12 foot wide living room and you wonder why it isn't selling?

Most likely because it is a walkup. People have more options now. And some aren't willing to give in for this inconvenience. Beautiful unit though.

It would make a great 1 bedroom at 495k

No mention of square-footage anywhere. I'm always skeptical of any property that omits any vital information.

Looks like it's around 700 sqft and 150 of that is hallway. Half bath is tiny and doesn't work as a guest bath since you have to go into the bedroom to use it, and the master bath doesn't function as one since whoever uses the small bedroom will have to bath there. With the pocket and french doors, privacy is definitely an issue here. This only works as a 1 bedroom with home office, or for a couple with an infant. Who's going to want to drag a stroller and kid up 5 floors? I think the ideal layout would be to turn the living room into the bedroom and switch the bath and kitchen, turning it into a great 1 bedroom.

It's a very pretty interior, but such an awkward layout full of compromises and wasted space. wyndcliff is on the right track with switching the livingroom and bedroom and making it a 1-bdroom instead. But that is going to cost plenty by the time it's done and you still have an awkward location for the full bathroom on a 5th floor walkup that would have to resell at close to $1M to make it worth it. Plus, swapping the rooms won't work if the windows are too small and with poor views on the entry side of the apt. In the end, too many compromises for this amount of money (and 30% down). Very limited market for this apartment. Keep watching it--the price will likely fall in this market. It's the kind of apartment that will feel the effects of a slowing economy earlier.