The AirOne web site says..
"Regulation (EC) 261/2004 in force since 17/02/2005, sets common standards for assistance and compensation.."
That regulation doesn't appear to cover the exact situation here but does say..
http://eur-lex.europa.eu/LexUriServ/...4R0261:EN:HTML
(20) Passengers should be fully informed of their rights in the event of denied boarding and of cancellation or long delay of flights, so that they can effectively exercise their rights.
and
(17) Passengers whose flights are delayed for a specified time should be adequately cared for and should be able to cancel their flights with reimbursement of their tickets or to continue them under satisfactory conditions.
The issue being... were they fully informed so as to be able to "effectively exercise their rights".