Is this definitely against the ToS? My feeling is that this was bound to happen. This is analogous to ebay sniping services, no? Even if they don't like it happening, I would be surprised if this didn't become fairly commonplace. Worst case scenario (though IANAL so I don't know if there could possibly be any legal action taken) is that your IP / account gets banned for violating the ToS.
As a thought exercise, can this really hurt their business? As you mentioned, $1500+ was spent in bids alone. Even if you won, only the other person lost, not the auction site. Now when everyone starts doing this, everyone uses this software to bid up to their budget, and we're back to square one. So long as people have competitive budgets, bidding just continues as normal.