What would you have done in my place?

The couple in question are fighting their corner (as they see it) in a completely obnoxious and aggressive way. My initial inclination to let them have the domain as a simple "push" evaporated weeks ago.

I checked the dates - the domains were paid for by me in March of this year. Their web site went live on 24 October. In that time, we had conversations about other business matters but, as I thought they hadn't decided about the web site, I left that alone. They literally told us about it the evening before their site was switched on.

If I decide to sell to them, I am certainly going to charge sufficient to cover the cost of search-engine optimisation to achieve a top google position. I also like Phil's suggestion of leasing the domain name. My only hesitation about that is that I would have to speak to them on an annual basis

Hmm - of course, charging SEO fee plus annual lease for the domain name would be the best option of all.