I'm not into all this heat treating stuff - as 'yain' said you'd be silly to try and heat treat one area only.
I ripped a head tube clean off a frame and then got it welded back on and fitted Fattys and front hopped it to death and it is still solid. My Ashton Justice had a 2in crack round the driveside BB/seat-tube weld - fixed it properly and its still fine a year later.
Thing is, if one part of the frame has gone, then another area may well go afterwards, although it does depend how the frame is built. Martyn told me that the Justice was designed to focus stresses on the BB rather than the headtube, so I think if it was going to crack again it would be around the new weld.
You can't really tell. Although 400 for Mitch's bike doesn't sound too bad. Although you'd have to ask what he did to it to make it snap in the first place - might suggest it's had a hard ride.
(And don't anybody give me any 'stop trying to ruin someone's sale' - I'm just trying to give an honest opinion to help this guy out)