That's insane. I'm not a gamer but it looks like they just published how to "hack" the console and they were hit with that. That's crazy. In the span of a minute, I can think of a dozen better solutions to this.
If I'm reading properly, they didn't even do anything that I'd call wrong. They found an exploit and published it. I suppose the DMCA and "circumvention tools" come into play - but that only points to the absurdity of the situation (at least in my opinion).
If you break my system, thanks for letting us know. It'd be great if we could pay you to help fix our system and make it more difficult to break in the future.
I'd not take them to court. I'd try to hire them. Hell, I'd give them reward money - even if they didn't want to be hired.
Not everyone wants to give their work for free, dress in coloured cothles, sing about peace and love and grow tomatos in a community.