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Okay, this is just me, but here's what I would do:
First, I'd contact Craigslist and tell them what happened and try to get the seller banned.
Next, I'd go to the police and report the scam. They might keep the Kindle as evidence, but that's okay because the guy might actually be brought in and forced to make restitution to you in exchange for not pressing charges.
Finally, I'd rest easy knowing that I'd done what I reasonably could to get even with the guy. It would be far more trouble than it's worth financially, but striking back at evildoers is its own reward (as is Old Testament vengeance).
I wouldn't worry about returning anything to Amazon. They don't care about getting a used Kindle back. More trouble than it's worth to them.
It may not seem like it now, but $120 is a pretty cheap life lesson.
Good luck, whatever you do.
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