Walk away and keep walking.
Unless he is prepared to prove the story given it, doesn't really ring true to me. As I understand it this car should be recorded by HPI (CAT-X) as the insurance company, apparently, have paid out on it as a total loss.
Category X - A vehicle which is not listed as being damaged on the HPI register, or one which may have very little damage. Often these are vehicles that have been stolen and then recovered.
In any case his "buy it now" price isn't that cheap given that we have been discussing new R32's (without the , err, questionable history) for £18K...
I would say its worth about where the bids are now given the history and the state of the car market.
I would go to a dealer, ignore the sticker price and start haggling at around 20% less... and tell the dealer that it is unreasonable for him to expect to make a margin on both the car he's selling and the px he's taking from you...