HT, that battery is puffed like you said. I wouldn't use it any longer. I don't think it is dangerous by itself, if you don't try to put more charge into it. But I would cut it off and take it to the nearest Radio Shack for disposal.
I can't make it out what's underneath the yellow tapes. Is there a circuit board inside? Recharging for 2 hours would be too long at any rate. The status light in the charging cable never changed during that 2 hours? Could you send me the EBay link? I want to see what the seller said about overcharging.
It's a good thing you caught it. Imagine if you left that thing charge overnight!
Lesson for everyone reading this: NEVER EVER charge a Lipo unattended.