As I understand the situation, I think we can surmise the following:
1) Castle believes RISCOS Ltd isn't licensed to offer RISC OS for emulator products or embedded systems or something else;
2) RISCOS Ltd believes they have or had an exclusive licence to develop RISC OS for desktop machines, so Castle weren't licensed to release RISC OS 5 for the Iyonix in the first place. Although Castle subsequently bought RISC OS from Pace, presumably Castle have inherited E14 and Pace's agreements, and are obliged to honour them until they expire.
If both the above are true, it would appear that both companies have pushed their luck on occasion. Let's hope they can both take deep breaths and sort out their differences while keeping the lawyers to a minimum. At the end of the day, both Castle and RISCOS Ltd are small companies. Heavy lawyers' bills could cripple them and, indeed, the entire marketplace.
Incidentally, I think something that has been glossed over in these discussions is Virtual RPC. Lest we forget, we could well be seeing Windows + VRPC completely (and vastly) outperforming Iyonix in the next 12 - 18 months, for 2/3 of the price and with a much more useful machine to boot. I don't see how anyone could justify spending so much money on an Iyonix in that case - there are more worthy charities you could give your money to. As a business, if Castle sees a future for RISC OS running natively on the desktop, it would be downright remiss of them not to try and prevent this situation from becoming reality.