Ok,
I wrote the second place buyer again, and sent him a copy of the bid conformation as proof that I did outbid him fairly. I asked him to "bow-out". much to my surprise, he wrote me back and said he would. It was the honorable thing. hopefully he doesnt think I'm too much of a jerk, but I felt I needed to stand my ground on this one.

Thanks for all the advice.

Shawn.