Yes the hacker was a guy called Hufflepuff and at first everybody was amazed at his luck and then it took them a while to realise that the guy actually cheated.
If you got some spare time, there is a summary in this thread:
https://bitcointalk.org/index.php?topic=843892.0The videos are still working on Youtube and looking at the videos it looks like legit bets actually. Pretty crazy with the amount of BTC that the guy ran off with. Was a huge blow to the site and the gambling industry back then.
The bets looked legit because Hufflepuff figured out to get the server side seed and that means he could understand what value will come next before rolling and primedice took some time to figure out the security loop hole, it looked like an inside job by the way the hacker figured how to get the combination of server client seed and nonce, but Stunna later explained that he did not run away with all the coins he won through that loop hole but he ran away with a huge amount either way.
I don't think it was an inside job. From what I understand, he basically flooded the server and got the site to accept a decrypted server seed which was already known instead of a new encrypted server seed and this way he knew the results of all the bets beforehand.
Reading that topic, nobody stated that he was an employee of Primedice. I think he just found a loop-hole in the software and exploited it. I think the admins should of checked the server logs prior to sending his winning withdraws but they probably didn't look too deeply into it at the moment. Looking at the way he bet, it did look like legitmate bets and you would just assume he has "really deep pockets" and feels comfortable taking "huge bets".
No idea where the coins went. I don't think he could deposit them into an exchange and cash out. Most likely he either sold them privately or OTC or they are still sitting in some wallet somewhere doing nothing.