At a guess:
a) Precedent. They don't want anyone getting the idea that suing them for the "right" amount (i.e. low enough) will result in a payoff
b) Cost. is probably not a large factor, as they're ibm lawyers anyway, I believe, and even if costs are incurred, I'm sure they're prefer to pay this money to their legal team than to the shareholders of the company on the other side of the litigation.
c) Logistics/legality, I'm not sure if it would be as straightforward as you suggest, as unless you have 100% of the shares, there are laws that protect minority shareholders, so it might be difficult to drop the case from the sco side without opening a can of worms from any remaining shareholders. (and there would doubtless be a few that refuse to sell if the above happened, hoping (somewhat logically) that if they were prepared to buy out the whole company to avoid litigation costs, that they would do the same for the last few shares for the same reason.

It was also reported by the bbc http://news.bbc.co.uk/1/hi/england/london/8293784.stm

How exactly would this be in breach of the DPA?

Since they have proven that they can remove the copy from the user's device (by doing so) if they said they could not, that would not be the "correct answer", it would be a lie. And, if the failure to remove the infringing data was a "will not", not a "can not", it would seem to be trivial to prove that any further infringement (by keeping it on the device) was wilful. (if they could remove it but _chose_ not to)

The policies are fine, the problem is that it is the _manufacturers_ are not sticking to it. The Eula for XP clearly states that it's refundable, so unless the manufacturers are able to change the licensing on a MS product, what they are (and must) be selling is the hardware with a refundable copy of XP installed.

Did anyone really expect that the back end database would be checked for all use, no matter how trivial? No, of course not, so saying this is simply a statement of fact, and, if anything, an attempt to convince people that they are backing down, when it is nothing of the sort.

The most worrying aspect of the id system is the creation of the biometric database, not the card itself. The card itself may be the most visible, but it's almost a red herring, so you will see more ploys like this to show the government "giving in" on the card aspect, without any budge on the crucial part of the database itself, which is scariest part.

In short, this "watering down" claim is a decoy, and means less than nothing.