Strange story - definitely sounds a little “scammy”, though I don’t see how the scam would work if you’ve been dealing in cash. Based on the picture I’d agree that the bike is worth $70-100, tops, but if you agreed to a price, and they paid you less than that and they have the bike, I’d say you could consider the deal done, unless you want to give them some money back out of the goodness of your heart.
If they paid $500 with a check, and are asking for $300 cash back, then that’s a different story…