Unfortunately, the OP is correct. The US cannot harbor individuals accused of committing crimes in other countries. Technically, Mexico doesn't harbor criminals either; their issue is with capital punishment, which is why extradition agreements for Mex citizens accused of murder have no-death penalty clauses.
In Dog's case, he could have easily brought in the Federales to make the sting after doing the initial setup. He could have even filmed the whole thing just like he did for himself. If it was a function of money, he could have sweetened the pot for the local officers.
Bottom line is he broke Mexican law. No different from driving south-of-the-border without Mex insurance or transporting firearms over the border. OTOH, you can legally kill yourself playing with fireworks (quarter sticks of TNT, etc) down there, but don't try bringing them back to the US, otherwise you might get charged with possessing explosives.