Earlier quoted context omitted.
Yes, they did. This was not the goal of the bounty, but was still a serious issue. They couldn't give away the prize for the contest and instead decided on a still quite generous $100,000. http://telegram.org/crypto_contest
This was not the goal of the bounty, but was still a serious issue. To be clear, this bug was enough to compromise the security of every Telegram secret chat session. I can't think of a more serious issue.
Worse, it's the kind of flaw you'd expect someone subtly sabotaging the protocol to create. It's a small, superficially plausible modification that turns an apparently secure scheme into something completely broken. Yet if they'd made that modification in the obvious way - by combining the nonce and Diffie-Hellman result with a secure hash function - it wouldn't have caused the problem; for the vulnerability to exist the nonce has to be handled in a very particular way.