EDIT: Oh, and if I received an email like the post above, I would go to the cops and have them track whoever had sent the email. You can't buy stolen property, and then "ransom" it to the original owner. The recourse for the person who unknowingly purchased stolen goods is to sue the seller in small claims court. If it is stolen property, it should be a slam dunk case if you go to court, they can't sell something they stole/don't own.
He didn't knowingly buy stolen property, he bought something that turned out to be stolen, which he wasn't obligated to research in the first place.
Also, by the OP's first post, the contacts seemed to be the main issue here, as long as the owner gets those back, the moral clause should be satisfied. I would feel bad if I knew this guy was in need of his contacts and I deleted them and went about my day.
As an honest/moral person, i'm not going to "give up" a couple of hundred bucks, take the seller to small claims court where i'm likely not going to get any money back (my father works in real estate, small claims court often nets you $0 even if the judge awards it to you, and I doubt your getting anything out of a person who is selling stolen goods, if they even showed up for court which is doubtful).
If I was in the same situation, I'd be happy to get my contacts back, and i'd offer to buy my phone back, I wouldn't expect someone to pay to give me my phone back. I'd also still need to be sold on the fact it was stolen. How do we know the original owner had it stolen, and he didn't leave it in a restaurant, or on a table at a mall?
Being moral doesn't mean being taken advantage of. If being moral in this situation is netting the OP a ton of trouble and -$300, no wonder there are very few moral people. As I said above, i'd just be happy to get my contacts back.