Theasix, there's some helpful advice over at the Slyk forums. Specifically two posts, "
I've received a letter what should I do?" and "
What can we do as a group?".
In brief, if you didn't do it - reply and deny. Don't put too many details in the letter - you're just giving them points to argue over.
They don't need to know you use wireless, they don't need to know how many people use your connection - just that
you have never bought or downloaded what they accuse you of making available so you couldn't possibly have distributed it. Express concern but politely tell them they are mistaken and they should go away. It is
not a legal requirement to secure your wireless and you are
not responsible for people breaking the law with your connection, without your consent. Bear in mind that if it's your name on the letter it is
you they are accusing of the offence and
you they will (probably not) take to court.
If you did do it, £500 is a lot for a single file. Also, they have no place deciding the damages - the only person who can do this is a judge. Send them a cheque for one copy of the song and tell them you consider the matter closed.
If you are innocent, complain loudly to your MP, the Information commissioner, the SRA and your local newspapers.