I live in Toronto and was told by a police officer that the law is you must report any accident with a combined damage of >$1000 to a Collision reporting centre within 24 hours. HOWEVER, this does not appear to be mandatory!.
"Any driver involved in a collision where damage to vehicles or property is more than $1,000 may report the collision to a Collision Reporting Centre"
http://www.mto.gov.on.ca/english/faq/vehicle.htm (scroll down)
I agree with #2 above -- call their bluff and make them get an appropriate estimate or take you to small claims court. If you still have a copy of the "December 2007" estimate, it would make for an interesting court appearance.