You should apply no matter what. Don't write yourself off.
Writing a note about your special circumstances would probably help -- as long as you did it professionally. And of course great professor + employer recs will go a long way to overcoming any letter grade issues.
From what I've heard from friends at both Fletcher and SIPA, there are more superstars at SIPA, but it's difficult to interact with them. Fletcher seems to foster better student-teacher interactions.