James, the fact that you have taken the step to remove the product shows you are trying to do the right thing. The author should have asked that it be removed immediately once it was clear that he had issues. Instead he chose to leave it up and institute minor fixes as he went (which is a lot like what happened in the recent past with a certain popular "free d20 compliant product" but that is an old discussion). With the amount of product you offer, there is no way you can police it all. Ultimately, it is the responsibility of the publisher of the product to make sure he is in complete compliance, not yours.
However, if a complaint from an individual is brought to your attention, it should warrant investigation either from yourself or from someone entrusted to handle such matters. A great deal of violations are usually corrected through a simple email pointing out the problem between publishers. It's only when you get someone (such as in this case of blantant IP misuse) that it becomes necessary to apply a 2 x 4 to get the point across. You did the only thing you should have done once you were aware of the issue, yanking the product pending further review. That is probably the best way to go about it for now...