Update: I immediately took down my class project site after receiving yesterday’s ultimatum. I still don’t think the simple demo site violated the letter or spirit of the registration rules, but I took it down because I always want to operate in good faith. They followed up today to thank me for doing it, but also indicated that they were putting a hold on my account anyway. As a result, I am not going to be able to…
Who? As in not "they" or "the university", but who within the university? Can you tell where the directive is coming from?
If this comes from, say, the Provost's Office then this probably can't be handled internally. (The position of Provost is the #2 position at a university, and the provost usually runs the show while the President or Chancellor goes schmoozing with donors.)
But if it's coming from the Registrar's Office, then the Registrar doesn't have that much power internally, and you might be able to fight this decision within the university. What they did is not only brazenly immoral, it is also a tremendous legal liability for UW, and it should and might be a firing offense for whoever is responsible. And quite frankly no matter what happens I would seriously consider hiring an attorney (you might find one who will work on contingency).
You might speak with any professors in the department you have a good relationship with; I would be very surprised if they were sympathetic to this decision.
You might also talk with the university ombudsman, Dean of Students, etc. -- although I would be a little bit cautious and polite here. Just calmly describe the situation and ask what you should do in this situation. Hopefully (but this is very far from certain), they will calmly offer to intervene on your behalf, and then they will go ballistic behind closed doors and absolutely rake the Registrar over the coals. In any case, be poker faced, don't fully trust them, and avoid committing to a particular course of action if you don't have to.
Finally, here's an amusing hack. Salaries at UW are public record. If you want to find out how important any individual person is in the hierarchy, look up how much money they make. It's a fairly accurate barometer.
https://fiscal.wa.gov/Staffing/Salaries
Universities are not monoliths, and the relationships between different power centers are usually mistrustful at best.
Best of luck to you.