Catalytic converters are always very hot after driving for a while. Just replacing it with a pipe is no solution, since you don't meet the emission law standard anymore then. And he can sell the converter - even if it is really broken. All workshops do that. A converter contains Platinum, wich easily makes $25 or more per converter when it's sold to a recycling company.
Yes he can and definitely will sell it and if I were you I'd go get it back from him I bet he don't want to give it to you. I used to sell catalytic converters to a guy every week and some of them can fetch some pretty good prices most fords have atleast 2 but the mustang has 4 so if each one sold for say 60 bucks which is not at all uncommon then you're talking about a quick $240