Wiggy

I think somebody might be taking advantage of your relative inexperience.

They had months to sort this out and the domain would have stopped working for quite some time before it dropped. I know - I forgot to renew a domain at my place of work a few months back, and we suddenly had a non-working website and no e-mail for a week whilst I got it sorted out.

If I were in your position, I would at this very minute be placing the domain on eBay and informing them of the location of the auction. Place a £50 reserve on it. If they want it, they can bid for it. If they are just pulling your chain (which I think they undoubtedly are), then you can still try and achieve a reasonable market value for it, especially if it's a generic.

I think you would be acting out of good faith, as you got the domain with no intent to exploit somebody and you can't verify their true nature. Remember this - unless they have a trademark on the domain they have ZERO rights to own it now. They had MONTHS to sort this problem out and they didn't. They are now asking you to hand over a domain that is potentially worth a lot of money.

Assume they are lying, and act accordingly. It is now YOUR domain, the law is on your side as possession is 9/10ths and all that. Hand it over to them even for £50 and they're making a fool of you, IMHO.