I've just read all of this (took a long time!) and I have to say I agree with the very first post by Charlie.
I'm curious which Paul Auster work was the one mentioned as plagiarised. I imagine that could have turned into an expensive legal problem, easily capable of bankrupting a small magazine, by the way. I have a vague sense of deja-vu (ironically?) about Auster and plagiarism allegations - don't know why.
There is no copyright on ideas, nor should there be, nor could there be. Die gedanke sind frei. But that is a different matter to a squalid ripoff between two erstwhile friends who are both writers. If somebody who's not a writer said to me why not write a story about a piano tuner in Ballygobackwards, I think it's perfectly in order to do so and show them the result. However, if the writer said he or she were writing it, I would have to be a right numpty to take it on myself to write the same thing, would I not? No?
Shakespeare reused old stories as the plots for his plays and that's fine. It wouldn't have been so fine to use a then contemporary writer's storylines though. It's almost the norm for books to be based on other "templates", if only as obscure as Homer's Odyssey for Joyce's Ulysses. However, courts have drawn the line at such things as a sequel to Gone With The Wind from the maid's point of view, called "The Wind Done Gone". In a more recent case J. D. Salinger blocked the publication of a lightly veiled "sequel" by some other writer to Catcher In The Rye, in which Holden Caulfield is portrayed aged 60.
I attended a talk by Bernard Cornwell in which he stated that all a writer had to do find commercial success, which was all he wanted, was to take a successful template, change all the names and settings somewhat and send it out and that that's what he had done by transforming the Hornblower novels into his Sharpe series.
His other "big idea" (from an agent) was that publishers wanted a series, and the example he gave was that if you wrote a book "How to look after your pet dog", one copy could be sold to every pet shop and that was the end of you. So - again templating - his suggestion was write a book called "How to look after your Alsation", then an endless series of almost identical ones called "How to look after your Labradoodle" (etc.)
So back to where I started, I'm with Charlie and not Cornwell.
Sympathies to Vanessa.
By the way I read hundreds of stories every year for a competition and I still haven't a clue what to write when faced with a blank page and haven't written anything for ages. It would never enter my head to bother what anyone else wanted to write. As for making money out of writing - there's more to be made washing windscreens at the traffic lights.