Whether you decide to proceed or not, document all the details of the effective 'breach of contract' and ensure they are submitted in a written complaint to the estate agent, and copy to your solicitor and the IAVI. This is just the type of crazy messing around that estate agents have been getitng away with for a while, and the more people that confront these issues the better for everybody.
RANT OVER!
In relation to your quandary, I think you are certainly within your rights to withdraw form the sale if you so wish and recover the deposit paid. Don't know the area, but anecdotally, there seems to be much more property on the market these days than a few months ago, so maybe you should consider your options. The current state of the market would also suggest to me that you won't lose any money by waiting, but then again I can't speak for your specific area.