Do i need a lawyer, do i have any legal rights concerning the issue below?

Your friend gave the car to you; it is yours.  At the least, even if you can't keep the car for some reason not apparent in your question (for example, although you believe there is no title, I suspect your friend may have had a title and never transferred it to you; I don't think the car could have been registerd, insured, and legally operated without title, and how could he get you arrested if he couldn't show title to prove he was the owner of the car?), you should be able to recoup the reaonable value of the labor and parts you put into the car.  The problem is that your friend is apparently now contending that he did not give the car to you, and, although the fact that you stored it, raced it, and improved it for the past two years lends credence to your claim, there is no guarantee that a court will believe you.  Either way, though, I think the police are likely to believe, as I do, that this is a matter for a civil lawsuit, not a criminal action, and will do their best to avoid arresting you, but there are no guarantees.