I come from a journalism background, where we had to wrestle with fair use restrictions quite often, and it turns out that fair-use claims when it comes to images are not as cut-and-dry as with, say, text.
I'm allowed to reprint a sentence from a book in a review about that book and claim fair use, but I'm not allowed to reprint the entire book, even if I'm reviewing it, and claim fair use. But with images, those who claim fair use are typically reprinting the entire work. That tends to be a problem, because one of the four prongs of the fair-use test is the amount of the original work used. Among the relevant questions here are: could the images have been shown at a lower resolution and still gotten the point across? Could only portions of the images have been shown and still gotten the point across?
Then there's the fact that she claimed in her official response that "this blog is my livelihood," which suggests that she's receiving income and is, essentially, operating as the sole proprietor of a business. Another one of the prongs of the fair-use test is the nature and purpose of the work, and you're more likely to prevail on this point if you're a nonprofit or can't be construed as a commercial operation.
I'm not saying that Zillow's threats have merits. I just don't think we should all be so quick to say, "Oh, well it's OBVIOUSLY fair use."