They paid the mechanical royalties on the score for the music. It's absolutely allowed on that basis.
The whole kerfuffle was with the cover art, which was not licensed, and Jay Meisel has said the he would not license. It's unclear if he would have prevailed in court, but that was potentially far more expensive for both parties than the settlement that wound up happening.
I was referring to the cover art, not the music. In my mind it was a parody of the original and should have been fine. The new cover art fit the transformative definition.
The whole kerfuffle was with the cover art, which was not licensed, and Jay Meisel has said the he would not license. It's unclear if he would have prevailed in court, but that was potentially far more expensive for both parties than the settlement that wound up happening.