hmmm....they must be happy enough with the PDF coffee table book you sent them. next time send your clients a more low res version.
on a more serious note...
if you want to fight the case, small claims tribunal will be your best bet. no need to spend extra $$$ on a lawyer, just produce all the evidence of $500 deposit paid, emails/sms of clients' request to change meeting times and dates, client's offer to pay $1k first, hi-res DVD of your completed and edited work etc etc. you should have a good chance of claiming the balance payment of your money. although there is no signed contract here, there is ample evidence of offer and acceptance and an implied contract.
on a more serious note...
if you want to fight the case, small claims tribunal will be your best bet. no need to spend extra $$$ on a lawyer, just produce all the evidence of $500 deposit paid, emails/sms of clients' request to change meeting times and dates, client's offer to pay $1k first, hi-res DVD of your completed and edited work etc etc. you should have a good chance of claiming the balance payment of your money. although there is no signed contract here, there is ample evidence of offer and acceptance and an implied contract.