"In other words "we didn't expect the Brit to fight back quite like he did and we need to re-trench and come up with a new strategy of explaining our piss poor performance"
I think they did expect this as one of a range of possible responses. Unless their legal teams are as incompetent as HP's board, they would have run through the options open to Lynch before HP went public with its accusations, and have a strategy to respond accordingly.
Having said that, this is high stakes poker by Whitman. Having herself voted for the Autonomy deal, she doesn't want to rely on her best defence that "it was all Leo's fault". So having decided to brazen it out, she's hoping that the probably quite modest dirt that may be found in Autonomy's accounts will be sufficient to justify the accusation, despite the fact that most "software" companies present similar issues of turnover classification and revenue recognition.
If they can't substantiate the accusations to credible degree, then Meg becomes another one in a now rather long line of shop-soiled CEO's over in Palo Alto. In that case, success for Lynch in a defamation case would probably not result in material losses for HP given their scale, but lawyers supposedly representing HP stockholders would be able to hammer the company with a class action (although suing the company you own doesn't make that much sense).
I seem to recall that Leo's pay packet including golden parachute was around $100m for his few months of chaos at HP. That highlights what the real issue is, and that is the appallingly low standard of corporate governance in major US corporations (not that the UK or Europe are much better).