Dear Mickey!
I'm sorry to hear you having this issue. I also received the same email a while ago. Thought it was spam so I didn't think anymore about it before I got a second email asking me why I didn't respond to the first. Because of that the price went up to $250 a month.
I wrote them back and told them to go f**k themself and didn't give it a second thought before my forum got flooded with images of naked children both in sexual activity and not. Thousands of links to cp sites.
The posts were written by 13 different usernames. IP addresses ranged from USA, Russia, China, Japan, Netherlands, Germany and so on.
I deleted the posts, of course! And the users posting them! Didn't stop anything. Three days later there were thousand of new posts exactly like the previous ones. Also sent Hotmail an abuse report, but as I see now, nothing happened. Guess warez webmasters haven't got any protection by the "law" since what we do is illegal.
Captchas, approval-only posting and about everything suggested here didn't change a thing.
I spoke to my hosting provider about it. Only lead to suspending my site with the reason: "Since your site is beeing attacked this way we cannot allow it to stay open". No help there.
These guys are not n00bs or amateurs. I won't recommend you paying them a nickel, just wanted you to hear my story.
I hope it'll work out well for you, Mickey
Best regards from Tristan, Canada