FHA definitely. You will have an FHA premium but with the conventional you will most likely have PMI. The lower rate will allow you to pay your mortgage down faster thus losing the insurance premium more quickly. Here are some numbers:
$100,000 property ($95,000)loan, 5% down 7% interest:
P&I Payment $632.04 per month.
Total interest: $132, 533.45
$100,000 Property ($90,000 loan) 10% 7.8% interest:
P& I Payment: $647.88
Total Interest: $143,238.04
If you put the extra $5,000 down on the FHA at 7%:
P&I Payment: $598.77
Total Interest: $125,558.01
If you put the extra $5,000 down AND pay $650.00 per month toward P&I (what you would pay in scenario 2):
Total interest would be $93,906.07 and would cut 6 years off your mortgage. More importantly, it would get you to that 20% threshold that you need to get rid of your FHA premium about 3 years faster (assuming 0 increase in equity). The important thing is to get rid of that FHA premium as soon as possible and then continue to pay that toward principle.
P.S. FHA inspections are not nearly as stringent as they used to be. If the house appraises, then FHA will usually pass it these days. I wouldn't make the choice based on the FHA inspection, if it doesn't pass FHA then you probably do not want it anyway.