Usually the biggest failing in a "paid" photo gig is not having a contract. But you didn't make that mistake. You did a contract, and that is excellent. By your description, it sounds like your dealing with a couple of %$#@'s. Those kinds of people simply exist.
It sounds like you've made an effort to satisfy them that goes beyond the contract. While that's admirable, you may have sent a signal that you'll bend (and keep bending) to their whining. That's not a bad thing, but has possibly put you into a bit of a hole.
Whether you *actually* hire an attorney to send a letter, or you say that you're hiring an attorney to send a letter, that might be your best next step. At this point, it sounds like "cease-and-desist" is in order (firm, but as nicely as you think it needs to be).
You said that there is a connection to another client from the past. Hopefully, this isn't crossing over into friend territory, because that sadly would get awkward for you.
The only other thing as a "lessons learned" for going forward is to put a clause in your contract that describes photography as an aesthetic thing. I have this exact clause in my contract:
"The Client acknowledges familiarity with The Photographer’s portfolio and is requesting services with knowledge of The Photographer’s style; that The Photographer’s work is constantly evolving; that The Photographer’s services are of unique and artistic nature; that the photographs may be different from those taken by The Photographer in the past; and that in creating the photos, The Photographer shall use his personal artistic judgment to create photographs consistent with his personal interpretation of the event(s), which may be different from The Client’s and/or the Subject’s vision of the event. Accordingly, The Client acknowledges that Payment for the photographs shall not be subject to rejection on the basis of taste or esthetic criteria."
Good luck.