"running it through a dealer", cross-state purchase tips?

[Brett Dikeman]

I'm in negotiations for buying a used car out-of-state.  The seller
keeps mumbling something about wanting to "run it through as a trade",
which seems to encompass him trading in the car to the dealer, then
the dealer selling it to me immediately.  The seller gets some sort of
tax credit out of this in his state (MN).  I'm not crazy about it from
the get-go, as it'll probably look weird on a carfax/autocheck report
down the line, and make things more complicated than they already are
(I'm in MA, where they do not recognize temp plates, will not issue
temp plates, and require the title to issue a registration.)

Is this normal?  Sketchy?  How can it go wrong?  Is this something
where a contract is written up between the three parties?  The most
obvious scenario to me is that the dealer turns around to me and says
"gee, that's a nice car, we think we're not going to give it to you
unless you give us another 2k", or someone on the staff buys the car
from them, or they think they can sell it for more to someone else,
etc.

Any other tips on cross-state buying? What should I watch for?  I
haven't found much except general comments along the lines of "do a
sale agreement, fedex check, get title fedex'd".  Some leinholders
apparently have forms available to have the title sent elsewhere when
the loan is paid off, etc.

Brett