When I bought my Arctic cat that I've got listed in my .sig, the guy that sold it was about to sign the title, and then mentioned he must have 'forgotten' it at home. (sled was 300 miles away, we met in the middle) Anyway, he said he would send it... Yeah, after months of bugging him, he finally went off the radar and no title ever showed up.
It gets better, I track down the currently listed title owner via the vin. After talking to him, I found out he traded in a totaled out ZR 700 for a new sled. That totaled out 700 is my shiny new 600! The 'dealer' basically used the tunnel and rebuilt it with whatever spare parts he had on hand. (it was a 2000 zr 700 carb, it is now a 2001 EFI 600 with a couple random newer parts thrown in for good measure.) Also, I put 200 miles on it, and the engine popped...
Long story short, everything turned out OK in the end. I rebuilt the engine, and worked through mountains of paperwork to get it officially titled and registered to me.
Anyway, in your case, it could be worse. It sounds like you missed some fairly obvious things during the pre-buy walk around, but that happens. As long as it runs and you have a title in hand, the rest is minor!
1) 2000 Arctic cat ZR 700, which now thinks it is a 2001 ZR 600 EFI APV w/136" ripsaw. (for sale!)
2) 1995 Yamaha VMAX 600, which now thinks it is a Polaris! (Polaris x10 suspension, Polaris P85 clutch) (for sale!)
3) 2004 Yamaha Warrior
4) 2006 Yamaha Nytro