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send them an email back saying what you said in the first post and ask for a quote of the law / guideline they are refering to which states they should be entitled to ownership of the domain name and ask for it in full, save the emails and best of luck, don't give in unless your site is 1- illegal 2- related to thiers
also if they are worried about typosquatting put a note on the home page that if you were looking for ******* (there site address) that you have it wrong and basically they can't do much how can they say your trying to do that whilst your saying your not it.
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