Only thing I can think of is that they realized the game might have some potential and shouldn't have given up the IP.
This is my personal translation of the entire situation:
Activision no longer cares about an ip they are developing and throws it in the gutter.
Double Fine picks it up because, unlike Activision, they care and continue work on it. Activision is like "yeah whatever, we dropped our ip for a reason and it's probably going to suck anyway" and lets have Double Fine have its way with it.
Then it suddenly appears that Brutal Legend is getting a lot of attention and might potentially turn out into a really popular game and Activision goes like "oh hey, but that was OUR game and WE were supposed to develop popular games like that" and then they sue Double Fine in order to prevent its release because they can't cope with the fact that they have been stupid to drop their ip like that while realizing that, under the helm of a company that cares, this "lost cause" is shaping up into what's very likely going to be a succesful game.
So that's what I mean with retarded behaviour. Or childish behaviour, if you will.