Finally got a response from the landlord on Friday. Actually it was from his attorney, and the letter basically said that they will sue us if we sue them. This is getting interesting very quickly...
Final update on this story:
We had our day in court last Thursday (Nov. 3rd), and basically close to the worst case scenario played out. We had to wait in the seating area of the courtroom while we waited for our mandatory mediation session, and while we waited we quickly learned that we did not want to get in front of this particular judge. He was definitely not in a good mood and was dealing with a pair of squabbling ladies who were just pissing him off more with their lack of preparation and their inability to even illustrate a reason to be in court. After about 20 minutes, the judge had to call a time-out because these ladies were creating a back-up of people waiting for mediation (which made him even more upset).
So when we finally got back to talk with the mediator, we find out he was the mediator for the two ladies in court in front of us and was also in a bad mood (although much better than the judge). The mediator listened to our side (with the landlord out of the room), then listened to their side (with us out of the room), then talked with us again separately to discuss options. He told us that the landlord had a pretty strong case and that things would probably not go well for us if we went in front of the judge because the landlord had receipts, invoices, and some intentionally not-so-flattering photos of the house. They even showed up with a counter-claim of ~$700 more (also with backup).
The landlord ended up making a few concessions with what they had told us they would do, we conceded a few things, and ultimately we agreed that the deposit stays with them, that neither of us owes the other anything else, and that neither of us can go after the other for anything more if discovered later.
So on one hand I paid $150 in court & prep costs to not pay the landlord the $93 he originally billed me, but on the other hand by paying a little more to the courts I ended up not having to pay $700 more to the landlord plus we now have protections in place to keep us from getting sued from more BS charges in the future.
Oh well, at least this chapter of my life is done and I don't have to deal with that POS house again.