Yes I think the thief should be prosecuted but with consideration given to the fact that he returned the bike.
Otherwise the message that you are giving out is that someone were to steal something and then feel that they might not get away with it (just remembered they left fingerprints or saw a CCTV camera or something) then they can return it and the case will be dropped.
Its very commendable that he returned it and it perhaps shows that deep down he is a good person.. but then again he knew it was wrong to steal in the first place.