Airtouch Cellular ripped us off and is now trying to destroy our credit

Three years ago when I cancelled our cell phone service with Airtouch, they owed us over $50.00 on over payments. When I wrote them three months later and asked for them to refund the money they then sent me a statement saying I owed them money for the purchase of our phone to the tune of almost 200.00 dollars. This was trumped up only after I requested my refund. I offered to send the phone back since we had never made any kind of commitment on it but they said we owed the money. When I pointed out that they indeed owed us money and I would like to meet them in small claims court, they said we couldn't take them to court because they were not based in our state.
Then, even though they never worked to clear up this issue, they reported us to the credit bureau as delinquent. This was back in 1997. I just found out today that they refiled this this year so it won't even drop off after 5 years like it should. We have always paid our bills promptly when they were legitimate. I think this whole thing amounts to a real ripoff.