Why were people pestering you to unlock his team? I would assume so they could then swoop up these elite free agents once this guy dropped them again. This cannot happen. It is one thing to deal with only one league member defacing the integrity of your league. But if your other league members are going to justify these actions by trying to benefit from it, then you are facing a whole other issue.
You shouldn't give in to the pestering of some other league members who do not have the league's best interests in mind. You, as the commissioner, must make the decisions that serve the best interests of the overall league. By putting back those players on his roster and locking him out, you resolved the issue. It may not be ideal and it certainly wasn't what you envisioned for your league. But it was the most appropriate and fair way to handle it.
You need to make an affirmative statement to your league that those players will remain on that team, and that the league owner will not be allowed to make any transactions. In the interim, you can pursue the idea of replacing the league owner. But you need to stand by your decision and not back down because you have an obligation to do what is best for the whole league.
If you need any help doing this, please feel free to contact me.