Such a line of BS! The guy is obviously in on it. I would call the authorities and have them advise you. Id get your $1000 back asap though. Google "odometer fraud Texas" and find out who to call. It is federal offense so you might find a number to call in the blue section of the phone book (it's blue in my book anyway, Fed/Gov) or speak to some one competent at MVS. Depending on who the title is signed by (odometer statement) that person could be held responsible for odometer fraud but I think you said it was left in the old owners name. If you don't have an odometer statement signed by the dealer or the guy then they have most likely covered there asses well enough and you just have to get your $1000 back and report there "operation" to who ever will listen. Lesson learned. Now time to go shopping for another 80!
Good luck man and you didn't do so bad considering he doesn't have your $5K. 
Good luck man and you didn't do so bad considering he doesn't have your $5K.