Credibility. If the book's credibility hinges on the unverifiable content you got from the inmate, you may need to either seek independent verification (the journalist's approach) or disclaim the veracity of the content (the lawyer's approach). For example, you can state within your book that you have been unable to verify the claims by the inmate and cannot authenticate the content provided. This won't avoid legal liability (and it won't help sell any books) but it does something to preserve your credibility -- that is, you're not trying to pull something over on the public.
Liability. Most publishing agreements require that the author indemnify the publishing company for any third party claims. For example, if the inmate makes an untruthful statement about someone who later sues for defamation; or if the inmate has copied a third party's letters and that third party sues, you would have to pay the publisher's legal costs and damages. At the same time, the disgruntled third party may come after you directly. There are some liability shifting techniques you could try. For example, you could transfer ownership of your book to an LLC or corporation and have that entity enter into the publishing arrangement. That may limit your liability -- that is, prevent someone from going after your home -- but it's not always a guaranteed shield and the publisher may possibly bypass that and demand a personal guarantee.
Limiting Indemnity. You can also try to tweak the indemnity provision of your contract if you have the bargaining power.
Some final thoughts ... (1) There's always insurance, and (2) We haven't mentioned this earlier since it seemed inapplicable to your decision. But whenever someone pays for permission they can request promises of authenticity and demand indemnity as well. Of course, that's only as solid as the other party's financial condition -- which is why it probably doesn't apply in your case.