I would be inclined to agree with baxterco at this point, bpm-uk. I'd simply respond to their main issue, use of their (presumed) images. However, I'd be careful not to admit to any culpability. For instance, I'd say something like:

"Thank you for bringing to our attention, the possibility that copyrighted images had been utilized on our {insert url} website. We are concerned with the protection of intellectual rights of others, and so, have removed the images in question, while we investigate the situation. Please be assured that if our investigation determines that such use was unauthorized, the images will be permanently discarded, and an apology will be forthcoming."

I'd not invite any escalatation at this point, bpm-uk. Save that ball for your next volley.