Thanks again for all your replies especially oldnic.
I got another call this evening, they can offer us the hotel I booked but it's two weeks earlier, which is not a problem for us but they want an extra €700!!! They said it is more expensive to travel two weeks earlier.
Wouldn't you think the fact that they made this awful error that they would forget about the €700. It's just terrible customer service.
After searching online, I can get the same hotel with half board for an extra €700 so we have decided to go with this option. Half board was not included with the Falcon booking.
I am 100% going to go ahead with some kind of legal action. Even though Sylvia from Falcon has informed me she has a legal background and they are doing nothing wrong.
We will also be travelling the same dates that we had planned to travel and while I am there it will be interesting to see when the thompson/falcon families booked their holidays before August 2012.
Thanks again for all the advice guys.