Hello lindavh. Some great replies in this thread. I would tend to agree with everyone and take mivoxs' advice. I've run into this same scenario in the past and each time it was a bluff. I knew from basic experience that the companies who filed the lawsuits did not have any legal grounds whatsoever. In both instances, my clients played the waiting game and never heard from them again.
It is a common ploy for companies to draft up a C&D letter to utilize as a scare tactic. It is not difficult to obtain a piece of letterhead from a company's law firm and draft up a bogus C&D.
I'd wait it out for a while and see what happens. I might even contact my attorney and explain to them what is transpiring and see what their advice is. Since I am personally familiar with your issue from your sticky, I see no legal grounds for a C&D. I am not an attorney, that is just a common sense response. Unfortunately when it comes to law, common sense may not apply.
All of the terms that I see in your title, description, etc. are generic terms that everyone is using. Heck, there are probably many other widget companies out there using the same terms. The competitor is upset because you are right there in the top spots under those terms. If we were all to play that game, our days would be spent fighting and issuing C&D's!