Just got served!!!

Well, now I'm really upset. We got served today by LHR,INC they are represented by Abendroth & Russell. Back in June we were contacted by LHR, we fired them off a dv letter CNRRR and in August we get a letter from this Abendroth and Russell. They told us they were representing the LHR and we had until such and such date to cure the default of $962. Well we wrote them back telling them we couldn't pay full balance at one time and would like to make payment arrangements. They then wrote back accepting our payment arrangements but they wanted us to sign a Confession of Judgement. Well, I then mailed them our next payment but also enclosed a copy of the dv letter and copy of receipt we sent to LHR back and June and said I wanted the debt validated before we would sign any Confession of Judgement. What they sent back was just a few copies of credit card statements from the original creditor. Well, I didn't take that as full validation, but yet I knew the debt was ours so I just continued on with the payments we agreed on but didn't return the confession thing. So my payment date was the 11th of each month. They filed suit on Nov 8th. The sheriff who delivered the papers today was VERY NICE and said shes never seen a suit filed when we were making payments. The suit is for the full amount of the debt, they did not subtract the $150 we have already paid them. I called this Abendroth and Russell to find out what the deal was, and this bozo I talked to said if they don't get full payment in such and such time they file a suit even though we had shown good faith by mailing in payments. He consulted his computer and says yes, I see you've made 3 payments on time just keep making your payments and you'll be fine. I'm like well you've filed a suit against me! So then I called and talked to the Clerk of Court who was very helpful, and said she really didn't see the point of this suit and that we should deny it based on the fact they did not deduct what we already paid them. In Iowa, you get a chance to deny or say you agree to the amount and you can then enter in payment arrangements. And then you don't go to court, the judge says okay make these payments on this date and as long as you follow through they can't garnish or put a lien on your house. So does this sound right to anyone? Should we deny based on the amount? The clerk said if we deny we won't get a court date until late Feb or March, do we still make payments to these losers?
Any help would be great!