Actually I don't know how much "No Doubt" is worth even if they don't perform anymore. Plus Gwen Stefani herself DOES still perform as far as I can tell. I'd also suspect most members of the group probably still play with various other groups, even if they aren't "A" list anymore. A career floating around on cruise ships with some "former A listers" band or whatever is still a career.
That said, I don't see where they have a leg to stand on here, since it seems to me that they didn't understand what the Avatars were for in the game.
Not to mention the fact that I believe "parody" was defended as an art form when Wierd Al was brought to court a couple of times for using people's images and the general sound/rhythym/beat of their music. Meaning that someone can't sue when someone parodies or satirizes them even without paying them royalties, even if it could be considered "defamation of character". This is also how various celebrity impersonators in general get away with what they do (like that dude who does "Frank TV" or whatever it's called).
As a result I would think most of what "No Doubt" is complaining about (them performing other songs, which might make them look ridiculous) would be totally legal without paying them. The more ridiculous it is, the more protected it would be. The big question being about their avatars performing their own songs "straight" and they themselves say they agreed to that.
Such are my thoughts.
Don't get me wrong, I'm not a huge Activision fan, but I do agree with them here. Just as I ironically backed "White Wolf" (despite not caring for them) against the "Underworld" movies (even if they lost, however understand I did this because of a specific story they published, NOT because of the similarities of the monsters and "lore").