If you dont want to hand over your ID why cant they just give you back the money ?
This is the ethical thing to do.
I think the problem is that Dwolla won't let them without compliance. The interesting thing is that MtGox states that they have this policy because of Dwolla (they stated this exactly to me in an email) but Dwolla only required a utility bill with a current address on it. So MtGox points to Dwolla as the bad guy but then requires way more than Dwolla and says "dwolla is making us do it".