I too was in the same position and think LH handled it poorly.
That said, it is easy enough to requalify and start towards SEN again. FTL status expires in 2004 so I will continue to receive the 25% bonus.
Since I have Star Gold status with AC I am not as upset as I should be. Once I figured LH wasn't going to honor what their website and other correspondence said, I stopped crediting miles to them. So close and yet so far . . .