You should ideally have notified Esat BT in writing of your intentions to not pay and they should have been given a deadline by which you would carry out your threat if your service was not made operational. To fail to honour your side of the contract, without formally warning the other contracting party that you considered them to have breached their side of the contract, is never advisable but it is not necessarily fatal to your case.
It is not clear from your post whose fault it was that the password was not set up correctly but nevertheless I assume that you were properly relying on their customer support staff, as part of their contractual obligations to you, to put right any problems regardless of how the problem had occurred.
In my experience, your best bet is to write to the debt collectors and set out the history of the matter. Tell them that should proceedings be issued then they will be vigorously defended. This usually results in the debt collection agency selling the debt back to the party that instructed them, as they really don't wish to get involved in litigation that relates to a customer dispute rather than just a straightforward failure, refusal or neglect to pay a due debt. Esat BT will then likely attempt to deal properly with your grievance, which is what they should have done in the first place.
Let us know how you get on, and good luck.