Wow, I actually found it quite disturbing the way Mark Rein replied in brief sentences with a "sorry" everytime. From what I've read about other such "fangames", the problem is usually not an issue of profit, but of reputation. They probably believe that a low-quality (that's not to say your game will be bad) fangame will bring the name of Jazz down. Although, I have no idea why they would care for something like that.

I'm personally not any good with this legal stuff, but I do not understand why making a 1.25 patch (let's say through ASM) would be a breach of intellectual property if it does not "copy" any ideas.

Either way, they seem very persistent on this issue, and in my opinion the use of "We no longer let outside developers..." implies that they have had a previous bad experience.