It's interesting they dropped the charges. I wonder if they were afraid to take the risk of a verdict that would have legalized alternate game servers (when you think about it : you bought the damn game, you should be allowed to plug it wherever you like). Even if that's really implausible, they really had nothing to gain with the lawsuit once they had scared the hackers away.
The charges were for copyright violations. It was merely a way to tell them to stop, as Blizzard has done this in the past, having lawyers show up to the doors of people making or promoting wow emulators.