The European Court (fourth chamber) has ruled on 2009-11-19 in the joined cases C432/07 and C402/07 that compensation is to be paid, like flight cancellations, if the delay is more than three hours at the final destination of the traveler:
2. Articles 5, 6 and 7 of Regulation No 261/2004 must be interpreted as meaning that passengers whose flights are delayed may be treated, for the purposes of the application of the right to compensation, as passengers whose flights are cancelled and they may thus rely on the right to compensation laid down in Article 7 of the regulation where they suffer, on account of a flight delay, a loss of time equal to or in excess of three hours, that is, where they reach their final destination three hours or more after the arrival time originally scheduled by the air carrier. Such a delay does not, however, entitle passengers to compensation if the air carrier can prove that the long delay was caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken, namely circumstances beyond the actual control of the air carrier.
http://curia.europa.eu/jurisp/cgi-bi...umaff=C-432/07
(click on list and then on the C-432/07-Link before judgement and scroll down)
So, regularly you should have the right for compensation (as long as no "extraordinary circumstances", and the court says clearly, that a technical problem in an aircraft is _not_ an extraordinary circumstance!)
It seems, that British courts are trying to circumvent European law, but I'm very sure, that in the end the European Court's decision will also be applied there.