In my personal experience, and what I've seen here at FT, it seems that the equivalent of one night's worth of points at the particular property is customary for more severe issues (e.g. extremely poor / rude service, severe room / property issues - it's also in the Starwood T&Cs for walking a Platinum).

If the property is offering you 3 nights, then that seems more than fair, although I would check into the accuracy of 3 nights at 10,000 points, as that would equal 3,333 per night - which does not resonate as a redemption value with which I'm familiar.