b) Don't let it! Move on, worst thing you could do is drag this on and not be up front and clear cut about it, because then it will drag the life out of the project and you.
c) Talk to your lawyer! IANAL, but -- Have you signed anything? If it's pre-incorporation, and you haven't agreed to anything, it's kind of a non-issue. As for ConnectU, I bet the case gets thrown out anyways, they don't have a very strong case and the judge is already annoyed with them.
d) You answered it yourself, plus you've learned a valuable lesson about getting the legalities out of the way before engaging in any part of the business. A good part of incorporating is so that you have a clear way of dealing with dispute resolutions such as this when they arise (and believe me they will!)