Definitely go on fighting them. But sara is wrong to say you can appeal. You cannot appeal against a decision to recover an overpayment. What you can do is to complain and go on through their complaints procedure, and then to the Independent Adjudicator & eventually if your MP agrees to the Parliamentary Ombudsman. Get COP1 - details of the complaints procedure - from HMRC website.
This can go on for months or years but it can be worth it.
If you have not already done so, put in a Data Protection Act request and ask for a CD of all calls (make sure you ask for calls made to you - if there were any - as well as ones you made) and copies of all paperwork and screen prints. Until you get it & study it you won't know what you might find that helps you. The phone calls where they told you it would be written off should be there, & will certainly help.
This can all become quite complex. It could well be worthwhile going to your local CAB for help. Also involving the MP is a good idea.