I LOL'ed at the cereal, but technically, although it is rarely pursued, internet hacking is a felonious act, in the US anyways. If this kid just convinced another kid to give him his password, that's not really illegal because the kid who got "hacked" broke the JaGeX TOS by giving out that information, so he already broke the rules himself. On the other hand since this particular situation includes the police and possible jail time, Im assuming he used some sort of phishing or actual virtual hacking into the victims computer? If this is the case then he did indeed commit a felony, based on the Internet Security Act as well as individual state laws concerning this act. If you would like to see the state ones, the link is here
STATE HACKING LAWS
Did he deserve what he got? I believe so, small time hackers these days get away with so much because its not worth going after them, if your not stealing millions from a federal bank, you will most likely go under radar but that doesn't mean what you are doing is right or that you shouldn't have to face the repercussions of your actions.