I haven't had a hotel keep my passport in about 15 years - used to be routine in Turkey and I've had it done in France and Portugal.

This instance seems a lot more malicious. I would post it on a few travel review sites. I would never consider dealing with a firm that acted like Penny's tour company.

As I see it, it's probably quite legal (under Greek law) for them to take your passport, but it's definitely illegal (under British law) for you to let them have it. So you're in the worst possible situation - British consulates are perfectly entitled to just laugh at you.