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Sorry, but you're not in the best position on this one (Not an attorney). The good news is at least they were polite! Maybe they'll throw you a bone? I'd be polite back if I were you and try to get what ya can.
If your site is making a fair amount of $$$, contact a lawyer and see what the options are. I bet that lawyer won't have good news. Maybe a lawyer calling them or writing them back might get you more for the site name.
Yep you guys would win, but your attorney fees would be significant generate ill will - then make a $ offer.
I've seen your tag line, wondered if this would ever come up... I bet it worked well for awhile though.
Good luck with it.
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