Harper sued the Liberals for $2.5 million in damages, to which he later added another $1 million claim for injunctive relief (whatever that is; I'm getting this from the Liberal Party 2007 Financial Statements (PDF)).

People have assumed that the large amounts were intended to intimidate the Liberals both on the legal front and the financial front (given their precarious state at the time).  I also wonder if it wasn't designed to scare off potential lenders or drive up the interest rate they'd have to pay to finance a campaign.

You're right that the case now looks to have been a loser for them, but if the Libs couldn't afford to defend it, or had to divert resources from other matters to do so, then it accomplished something for the Conservatives, don't you think?  (Although, you're the lawyer, not me, Wilf!)  The Conservatives sure applied a lot of spin after they got that partial report from the American tape expert, to try and force a settlement on the Libs.