You did nothing wrong. Those guys were good. Sadly they're not in jail for the last thing they did.
Others (we) will learn from it. The other bad deal is the used car paid for by certified check or money order. Many of those are counterfeit.
I got one (bank check) several years ago for 14K on the eBay sale of a late model SUV. It was out of a Phoenix area bank and I immediately went to my bank and got the manager to call that bank to verify it. It came back as being invalid!
The guy who sent it to me had informed me by e-mail that his friend in L.A. would be there that day to pick up my Explorer. He called me later that morning to ask me if I got the check okay (it came via Priority Mail) and I told him I had and was taking it to the bank to deposit first. I then went to the cops (there's a Sheriff's station near my house) but they said there was no crime committed yet and there was nothing they could do. No one had stolen anything yet. So far it's a civil matter is what they told me.
I had some dark thoughts about letting the "friend" come to my house and holding him at gun point, and calling the cops then. I wanted to empty the guy out and send him on his way with only his undies on. It's the kind of thing I might do in my younger days to teach them a lesson, but my more mature mind stopped me. I began to think of the consequences if the guy put up a beef and I shot him. That could get ugly and costly to defend. So when his "friend" called me later that day I just told him not to bother coming by. He got the message. I still have that check in the mailing envelope to this day.
One other thing - If you do get bilked like that, once you've signed the title away you're screwed. So in this case, let the seller beware! I've got a couple more horror stories about selling cars on eBay. One guy sent me a $500 deposit via Paypal, came and picked up the car paying the $4,000 balance and then waited several months before lodging a complaint with Paypal that he never got what he paid for! Fortunately I had saved all the e-mail communications between us and sent them to Paypal during the dispute process. Paypal had put a $500 hold on my account in the meantime. After thirty days it was settled in my favor. Once again, save all communications, phone numbers and other pertinent information in any transactions you make with strangers, even going so far as to get a copy of their drivers license.