Seller puts a $500 value $5 Diamond Jim's chip up for auction at $9.99. He has 3 bids entered (one is probably a shill bid). Then he gets "an offer he can't refuse" and cancells the auction (see "bid history"). Is this according to eBay rules?

Yes, I was one of the bidders. And, Yes, I expected to get the chip for only a couple of hundred bucks.