Before people start making raging posts about wanting to take control of the "ville" part, read the entire First Post.
It says, that their case rests on the whole capital V part: "In short, we will not drop our charges till DC drops the capitalized 'V' in 'SmallVille'. Now look at the title of Smallville. It's all caps. Nowhere in their original trademark do DC use the capital V, as far as I can see. Which would indicate that their product is attempting to ape Zynga's, possibly for profit. To not drop the capital V would seem indicate an ulterior motive(Gaining custom through false recognition), as it doesn't seem that a capital V has an important place in either Smallville or DC.
And come one, who really expects a browser based social game by DC to be something extravagant and exciting? It's likely a Mafiawars clone or a FarmVille clone ANYWAY. Remember the Assassin's Creed Browser game...? The X-Men browser game? Dodgy games made to cash in on recognisable characters.
Whatever the merits of the games that are being debated, the issue is that DC have replicated an element of a series of trademarks for a product in a the same market. That's grounds for the case, it's a sensible move. Not only that, copyright holders are obliged to defend their copyrights, which is exactly what is happening here.
Calm down people. Whether or not you like DC comics, it isn't the writers making this game, it's someone who realised Casual Games make a ton of cash in the management trying to break into a new market with slightly underhanded sales tactics.