Wow! I really wish you guys had taken a stance and ignored the request.
It's bluffing: they send a form notice, hoping that most would comply, even if not in actual violation, or not subject to the law.
On the other hand, I can say that, because it's not my site
And if they file a complaint, I don't have to answer it. (But I'd bet, if you contact a couple of relevant organizations, there is a good chance someone would be itching to take a case like this, pro bono, of course.)
The only way to deal with this is at the ballot box: don't vote for a representative, who support DMCA-like legislation, and vote for those who oppose it, regardless of party affiliation. And let them know why. If Joe the Plumber makes enough noise, at least some will respond.
BTW, is there a list of who supports DMCA-type legislation somewhere, and who opposes the DMCA?