Yes, the police may use convicted felons as informants to catch other persons engaged in felonious criminal activity. It happens all the time.
There are generally three kinds of informants: Those who provide information and help set up busts for money; those who do so in exchange for leniency for their own misdeeds; and citizen informants, such as those who report a crime on a tip line, who presumably have no financial or liberty interest in their report.
Some courts, when setting bond for someone charged with a crime, will include a condition that the person not engage in proactive work for law enforcement without obtaining prior permission of the court. But even in these jurisdictions, after a case is over and bond has been discharged, the person is free to make his own decisions.
Also keep in mind that police are allowed to lie when acting in an undercover capacity. Many people mistakenly think if they ask the person with whom they are about to engage in a criminal act if he or she is a police officer, and the person denies it, it must be true because cops are not allowed to lie. They can, and they do lie. That's the whole point of undercover operations -- pretending to be someone else.