The background to this is that the Regulations give zero compensation to delays, there was never the intention to give compensation there provided the airlines did their jobs properly. But what happened is that when airlines wanted to cancel a flight they would simply "delay" it until sometimes several days later. So the judiciary - realising the airlines' abuse of the system - said that at some point a delay is as bad as a cancellation therefore that point is declared to be 3 hours. Hence delay compensation came in to reflect this, even though it is not in the regulations itself.

So while you may not be happy with the 3 hour rule, it's better than no rule at all.