The fact that you do not understand why the police can take it is not the issue. They can. It is potential evidence of a crime. Your recourse now is to sue the guy who sold it to you. But I suspect that the cost of the item is such that it probably is not worth the time and effort, is it?
In smaller agencies, a single beat officer may take the investigation if it is not a serious violent crime. Heck, I am a supervisor and I have a case load myself.
Nothing you have written smacks of anything out of the ordinary in these sorts of cases. A victim reports a theft, describes the item, we or he catches it on Craigslist, and a plan is made to intercept and retrieve the item from either the thief (the usual result) or someone who may have bought it from the thief (the rare occurrence).