On time frames, here is the quick summary:
2/3/4 hours at departure is when "incidentals" kick in (meals,...).
2/3/4 hours at arrival allows the cancellation compensation to be halved
But in addition the courts realized that the law had a big hole in it. Namely that a long delay had no compensation while a cancellation did. These should be treated the same, and the courts fixed that. So:
A 3 hour arrival delay is like a cancellation and entitled to that compensation.
From Huzar vs jet2 appeal:
The Court concluded that there was no justification for distinguishing between cancellations and delays where passengers suffer equal inconvenience. In such cases passengers subject to a qualifying delay should, like those similarly affected by cancellations, be entitled to compensation under Article 7. The Court held that this should be payable where a passenger suffers, on account of 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 ."
OP is owed the money. But he did make it under the 4 hour rule, so only EU300 a head.
On the MX issue, it is not completely disallowed for the airline to claim exceptional circumstances. In the OP's case it is very clear though, APUs failures are certainly part of the operations.
The rule is described here:
The Court in Luxembourg has defined the concept of "extraordinary circumstances" by reference to the two limbs; first, that the nature or origin of the event or events which cause the technical problem must not be inherent in the normal exercise of the activity of the carrier (limb 1); and second, that it should be beyond its actual control (limb 2).
The jet2 ruling clarified that being outside the airlines control is insufficient to claim exceptional circumstances.