Since there is no police report, there is no proof that the phone is stolen.
What if you sold your iphone, then called Apple and told them that the phone was stolen, and Apple sent the phone back to you (the seller)? That would be a heckuva scam.
That's why you don't buy a iphone without the receipt or the extended warranty slip. If you're dumb enough to buy one without those two you deserve to be ripped off. You must transfer the warranty over to the new owner or no warranty. That is unless I misread something or Apple will repair anything as long as it's under warranty, stolen or not.
The lady has the receipt, called AT&T, Apple, and the cops. The only thing she didn't do was file a report, which don't mean jack since some cops don't bother to turn it in. Since it's a phone and odds are good it's gone forever, I get the feeling what's the point of filing a report? What happens if that report was never turned in or gotten lost or never started? What then?
It really should come down to who can prove they bought the iphone......