EC261/2004 is quite clear about "delayed flights", less so about "cancelled flights".
http://eur-lex.europa.eu/LexUriServ/...4R0261:EN:HTML
In all cases the airline should take "care" of the pax and that section is very detailed (article 9). Notwistanding the issue of compensation, the story told by the op suggests that BA did not fulfil all its "right of care" obligations of EC261/2004 (see article 5.1.a & b) because the flight was cancelled less than 7 days before its scheduled date. The tricky question is that of compensation according to article 7, because "An operating air carrier shall not be obliged to pay compensation in accordance with Article 7, if it can prove that the cancellation is caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken" (article 5.3).
In case of cancellation the airline can invoke "extraordinary circumstances".
They often claim that a "technical probelm" is such. The non-availabiity of a replacement aircraft is also a major issue. There is an interesting discussion of the issue of "technical problem" in:
http://www.flightmole.com/extraordin...cellation.html
The interpreation of 261/2004 in case of cancellation has not yet been tested in EC courts. So airlines have currently a lot of leeway in interpreting the regulation. But there is a case pending in the EC court (some scandinvian cour asked for an opinion of teh EC court). The Atorney General of the EC court issued an opinion on Sept 27, 2007. But the ruling of the court is still pending (should come out very soon). This is a first judicial advice provided by the EC court three months ago:
http://www.flightmole.com/id73.html
The main conclusion of the Advocate General is:
"
In order for an air carrier to rely on Article 5(3) of Regulation No 261/2004 so as to avoid paying compensation following the withdrawal of an aircraft from operation because of technical problems, both that withdrawal and the unavailability of a replacement aircraft must be caused by circumstances which:
– could not have been avoided even if all reasonable measures had been taken; such measures comprise, as regards the withdrawal from operation, proper and timely compliance with the schedule of maintenance and checks on the aircraft and, once signs of the technical problem appear, every reasonable step in the circumstances to resolve it without withdrawing the aircraft from operation; as regards the unavailability of a replacement aircraft, they comprise adequate provision for replacements in the light of past experience;
– are extraordinary in the normal sense of the word; as regards the withdrawal from operation, such circumstances may include technical problems which are neither of a kind typically occurring from time to time on all aircraft and/or a particular aircraft type nor of a kind known to have affected the aircraft in question before; as regards the unavailability of a replacement aircraft, they comprise circumstances unforeseeable by a carrier making adequate provision for replacements in the light of past experience. "
So the opinion is quite favorable to passengers. If the court confirm thie opinion of their Attorney General, it will force airlines to pay compensation in most cases where they now claim they are not liable.