Not the first case of this I've heard. I wouldn't do this through any site. The entire idea is greying into GCA68 territory a little to fast for my taste.

But this is the worst case like this I've heard.

I'd contact the buyer's home AGs office, see if they want to do anything with it. You have picture of the firearm, right, along with all the paperwork to show it was rendered perminantly non-operable? You did it by the book, the other guy didn't, so you should be fine. And I'm not terribly suprised ATFE doesn't want to do thier job.