Agree with guest Nick. I also use photoshop everyday. It wouldn't be the tool I'd use to do what you've described. I'd use a sledgehammer. And from what you've said, I think they've used a sledgehammer/another accident to make their claim from your insurance bigger. It's quite a common occurance over here, I've heard of a lot of such goings on. They do it to be 'better off with their car - it suits them to do it - they gain a better car/more money than it was worth'.

I'd be going down the I didn't do THAT damage route, but then you are going to be hard pushed to prove it unless, you A. have a witness, or B. like LTS said, can view any CCTV footage.

Apart from that, get your insurance company to sort it out, write a statement, and stick with what you say happened. The insurance company's lawyers can sort it - and hopefully you have got legal waiver cover...

Good luck

EWIS...