I think you can safely ignore this cease and desist. Just change the name and add a disclaimer so your users know that by using your extension they are violating their acceptable use policy. This is no different than any user writing a Tampermonkey script to modify any website they want to modify. Even further, this is no different than a user opening the Dev Tools console and modifying things there.
A disclaimer would not work. Disclaimers might work where there is a risk that the user will violate the acceptable use policy but this cease and desist letter has effectively said that all users will violate the acceptable use policy therefore the disclaimer would be quickly dismissed by any court of law. As a slightly bad analogy imagine a disclaimer that customers of a fairground ride might experience back pain. I…
But then the next logical step is to argue that he’s inducing a breach of contract by his users, which seems to be the case.