What's a bonded title?
 

I saw a local craigslist ad for a work van in good condition: $500 moving, must sell, etc.

Seller says he bought it from a friend from New Mexico who's now in Iraq. He said since he has a bill of sale that New Mexico will issue a "bonded title. " What's that?

You will post a bond equal to the value of the van. That way when the legal owner returns, if there is a dispute as to whether the transfer was legal or not you forfeit your bond. You are basically paying twice for the same vehicle. Or in some states the DMV holds the title untill the legal owner returns and signs off on it. In the meantime you cannot sell or use the vehicle as collateral