I've not been to south america, but I spent a fair amount of time in south east asia. Different part of the world but similar practices and yes the basic details of his story checkout. Police do setup roadblocks on random days on random roads in order to "check things". In Cambodia and Thailand a favourite was to check that you had the "correct helmet" a law recently being passed that meant you had to wear a helmet when riding a moto (most traffic especially in cambodia is by motorbike). That's the one I personally ran into.

About planting drugs, I can believe this as well. Remember we're talking relatively remote places where few foreigners are likely to go, this tactic is another part of the "negotiation".

So yes, this all sounds pretty plausible to me.