Hi Stusgsx,
Mate I would give them one last chance to put the thing right, Explain to them as clear as day that the only thing that you can guarantee with this floor is that it will fail. Explain why it will fail and how it will fail. If you can, show them the installation guide of the matt where it says Do Not Overlap Wires!! Tell them that companies produce these guides so that their products will work properly.
If you now reckon that the area isn't waterproof, explain the possible outcomes of a leaking wet room to them and what would be involved to put it right. I'd also ask them how much they spent on tanking kit, warm up boards and UFH, when they tell you how much, tell them they may as well had thrown the cash in the fire because none of it is going to work for them.
Its ok saying that you will finish the walls and ask them to sort the floor themselves but if you're not 100% sure about these people I would be concerned. If did you finish walls and not do the floor, are they going to be happy enough to pay you just for the walls and let you pack up or will they turn around and say, yes you have done the walls but you agreed to do the floor before the job started and we're not giving you a penny until the floors done??
I don't like being negative about customers because 99% of them are great but it only takes one to start telling people that my tiler came and started the job and wouldn't finish it etc. At the end of the day you have to look out for your reputation, my dad always told me, You cant buy a reputation, it has to be earned. And in my opinion its too hard earned to have someone run yours down when its them that are in the wrong!!
Do your best to talk some sense into them and I hope you get it sorted mate. keep us posted.