Hi Ingle
I am surprised at Virgins stance, but I don't think 261/2004 is the way to go. I stand to be corrected, but if the airline offer an alternative or a refund 2 weeks or more prior to booked date of travel then they are off the hook.
The regs are available online so you can check for yourself , but from a regulatory point of view I think they are in the clear. Cr@p customer service though.....
Good luck