An update on this issue (and sorry for not updating sooner but a combination of busy work life and some problems accessing Flyertalk got in the way).

I didn't respond to their initial offer of 20K (initially because I was waiting to collect some feedback from Flyertalkers and then because I got sucked into a looming work deadline). A few days after their initial email, I got a second email indicating that they were increasing the restoration of points to equal the full value of a night's stay.

And BTW, the reason I didn't name the hotel in the original post is because this wasn't a question of naming and shaming, and I didn't think the situation was the kind that required a warning to others (by contrast, if I'd encountered bedbugs, I would have let everyone know).