Is Zillow.com strong arming an enterprising developer? Or is the heavily-funded Seattle online real estate startup just trying to protect its brand?

Those are the questions at the heart of an issue that arose this evening after the creator of iZillow.net posted on Hacker News that Zillow.com was offering to buy his domain name for $250. Last May, iZillow.net created a service to optimize Zillow's online home valuations on the iPhone.

The post also noted that Zillow.com was threatening to turn off API access for iZillow.net if they didn't sell out, so I asked Zillow's Amy Bohutinksy what was going on.

Here's what she said:

"He misused our trademark and we had to follow up. He's welcome to continue using our API as long as he doesn't infringe upon our trademarks and use the brand name Zillow," said Bohutinksy. "As per his post - it's not a complete representation of our correspondence with him.  This is about defending Zillow's trademark, nothing else."

The dilemma has sparked a fascinating discussion on Hacker News, with several people suggesting that iZillow.net doesn't have much legal ground to stand on.

"$250 is certainly a lowball but their registered trademark for Zillow gives them almost infinite leverage," wrote one reader. "They can just take your domain if they want to. The sweet spot price is just below what it will cost to sue you for trademark infringement."

The issue heated up this week, in part because Zillow.com unveiled its own iPhone application to much fanfare. As I reported earlier today, more than 15,000 people have downloaded Zillow's new app.