Pallisades Collection Threatened to report to the credit bureau - bill is bogus and 11 years old Englewood Cliffs, New Jersey

Hello - 
I received a letter from Palisades Collection LLC. October 10, 2012. They are stating that I owed Verizon $400.07 from 1/24/2001 (yes 2001). I DID have Verizon service at that time and I had kept Verizon Service for some time after that too.

All of my bills were always paid and I when i called Verizon, they informed me that there is no amounts being showed outstanding, and they informed me they went back as far as 1998, when i first got the service. The lady at Verizon also hinted to me she heard of this company before and offered this to me  "don't you think we would have come after you in the past 11 years or it would have shown up on your credit before)?  Even when we moved (July 2001) we had kept Verizon residential service.

Palisades asked me to send a letter of dispute which I did. They called me last week to inform me that they still want their money but they were willing to take less. These scum balls threatened to attack my credit (which presently I have a score of 850 :-). I actually feel helpless here. This is a bogus bill and I refuse to pay it. What are my options?

Thank you