It seems to me that doing nothing would mean (a) you getting screwed by some scam or (b) you enabling somebody else to get screwed by some scam. Both are bad. But you already knew that, or you would not have asked. That speaks well for you.

It seems to me that "report to eBay and block the bidder" is the way to go. You may need to pull the auction and restart it, with the bad actor blocked. It's a pain, and the $$$ are dazzling, but you would feel like a schmuck for going along with this long after the money is spent and forgotten.