Well you're right and they are in the wrong, I suspect they are aware of that and are trying to dodge getting stung. As the photographer you retain the copyright on the image and emailing it does not change this at all, they are not entitled to use the image beyond what was originally agreed unless you give express permission. Altering significant parts of it does not alter the fact that it is your image and you own the copyright unless you sign it over to someone. The fact that the photo has been passed on by your friend does make it slightly awkward as she ma have told them it was ok to use it in this way without realising the copyright situation.
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