I think they are playing the technical argument that you couldn't have been denied boarding as the ticket was cancelled, so there was no booking that you could have been denied on. I suppose it's correct, but pretty outrageous.

I'd write one more letter to them, give them seven days to refund your Easyjet flights, any out of pocket expenses incurred, plus whatever the EU 261/2004 denied boarding would have been. If they don't pay up, take out a small claim.

I've been down this very route when BA failed to pay up for an involuntary downgrade, and they paid up in the end before it got to court.