Could be a cheat, but maybe not. As you know, the current high bidders max is unknown. One way to find out someones max is to place a high bid, and then retract it (or have you cancel it). *OR* Some have 2 ID's at eBay. One for selling, and one for buying. They may have just accidentally placed a bid while signed on as a seller, changed their mind, mom or dad said 'no you can't have that' ect...
Why he asked you to cancel bids: If you cancel a bid it does not show up as a bid retraction on their feedback page. If they do it, it does, and remains on their feedback for 6 months. I would cancel and block a buyer with *many* bid retractions.
Valid reasons to cancel a bid include entered wrong amount, unable to contact bidder, or description changed. For any other reason, eBay's own instructions suggest a bidder contact the seller and ask that their bid be canceled, and not do the retraction themselves.
My policy is... If it was an honest mistake, it should not have happened often. One bid retraction on someone’s feedback is not a big deal and it is gone in 6 months. Let them do the retraction themselves.