I ordered a book from a seller who was advertising a 2-for-1 in the BB. I picked another book as my freebie. Well, the books arrived today and the book that I originally ordered (not the freebie) was very noticeably (in my opinion) water damaged. What should I do?

If the book and the freebie were on a bookshelf,  both should be postable.

If you feel bad about asking for the credit back, I would just mark it RWAP and move on.   

You should definitely mark it RWAP. Unfortunatly, sometimes people think that if they are giving you a deal the books do not need to meet posting standards - but as Karen said, if they were on her bookshelf, they need to be postable!

If it's the book you ordered and paid a credit for, you can mark it RWAP. 

Definitely mark it RWAP and send a PM.  The same thing happened to me recently.  I PMed the sender and she appologized saying the book had been on her shelf for a long time and she hadn't checked it well before sending it.  She returned my credit and everything was resolved in a couple days.  It's completely possible the same thing happened here.