This is all the opinion of a non-lawyer.

Be careful about appearing to destroy evidence. You have now been tipped off, and if you format your HD's without a reasonable reason for doing so, this could be used against you in court. Judges especially do not like this sort of thing.

You could try to get some support from the electronic frontier foundation, as lawyers in this organization have supported defendants in these sort of cases pro bono.



If you do decide to settle, keep in mind that it would only be for the listed files, and you may be hit up again for others. I'm not sure if paying once makes you a mark and more prone for these sort of letters.

I'm sorry you're in this situation, buddy. Sucks.