Guys, the UCC isn't the only law that applies to the situation...

Ed might not have rights under the UCC, assuming it applied to the transaction, which is questionable since Ed does not appear to be a merchant. He would have rights under state laws that override the provisions of the UCC.

[Edit] Most states actually override this provision of the UCC to define entrusting narrowly. See, e.g, California's provision:

3) “Entrusting” includes any delivery and any acquiescence in retention of possession for the purpose of sale, obtaining offers to purchase, locating a buyer, or the like;  regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law.

We need know nothing about the person selling the stuff on ebay. It's irrelevant how the ebay merchant got the goods, what matters is how the manufacturer gave up the goods.

If it was theft--easy case. Stolen property is not covered by UCC. (It's the Uniform Code of Contracts, so there must be a chain of contracts connecting the property from the manufacturer to the innocent buyer for the UCC to apply.)

If it was theft by fraud--now we're talking. This could mean, for example, that the eBay merchant ordered the goods from the manufacturer but then never paid, or lied about who they were, or some other such misrepresentation or fraud or crime. In this case, there's a chain of contracts, so an innocent buyer from the eBay merchant would be protected by the UCC. (Note that if the eBay merchant knowingly does not pay, it could be both theft or theft by fraud depending on the jurisdiction and specific circumstances.)

What you're ignoring is that the guitar guy never had the ownership rights to your guitar, and thus could not give the ownership rights to the buyer. The UCC only allows the middleman bad actor to pass on the rights they actually had. The provision you quoted early merely contemplates that the middleman acquired ownership rights through deceptive means (i.e., fraud), which isn't the case here. The guitar guy acquired custodial rights, but not ownership.

Thus, in pretty much every state in the US, you go to the police, and they take the guitar back, and the buyer has to go back to the store and get refunded.

EDIT: The following provision is why the guitar guy never gets ownership. (From California's Commercial Code, but most states have made the same change to the UCC text in redefining what "entrusting" means):

3) “Entrusting” includes any delivery and any acquiescence in retention of possession for the purpose of sale, obtaining offers to purchase, locating a buyer, or the like;  regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law.

That is absolutely not true. If you found the guy with your guitar you can take it back(without harming that person in the process, obviously!), the ownership has never transferred from the store to the buyer because the store never had it in the first place.