I'm no lawyer but I have some knowledge about legislation about T&C. I don't think that they can effectively restrict their liability for consequential damage after they did confirm a booking. If the airline confirms your booking and you make arrangements for hotel and car-rental they cannot just announce that they cancelled this connection and you only get the paid fare back IMO.

But even if it's a grey area, they risk substantial money with so many bookings cancelled. No wise decission IMO...