Yes, you're over reacting. The way I see it, you're husband NEVER had the ATV to start with. He's going to have a helluva time convincing the two losers otherwise.
The co-worker who made the offer in the first place is a jerk and set your husband up. Instead of stand up and making it clear that he gave hubby the ATV, he left it to your husband and his brother to duke it out. And if for some reason he didn't want his brother to have it all, he shouldn't have put your husband in the position of doing his dirty work to avoid a squabble.
For your husband's sake and sanity on the job...just tell him to let it go. Nothing gained...nothing lost. Short of having it written down on paper and a transfer of title, it's not your husband's ATV...nor is it worth another moments anger or sweat.
If anyone there is anyone to be angry with, it should be the spineless co-worker for dangling the carrot. I wonder if he is one of those jerks who gets off on pitting people against each other....like throwing two toddlers in a playpen with one toy or one cookie and sitting back to see the show. Hmmm. All I know is, there is no such thing as something that valuable for "FREE." Believe me, sounds like you're husband would have been paying for it...in some way that probably outweighs the worth of the ATV.