Legally, I recommend contacting the police with the guy's information. As you just received stolen property it's the best way to avoid trouble. If you don't contact the police, and the craigslist seller points them in your direction when he gets a visit from the cops, you could get charged with the misdemeanor.
Morally, this is someone else's kindle that was stolen from them. Amazon did not replace it, and now they don't have a kindle. Your "seller" stole a kindle AND your $120.