I'm not sure the U has a legal basis in trademark or copyright law (or unfair competition, for that matter) to demand that you not use the winged helmet in a blog banner. The UM regents corporation owns dozens of trademark registrations for school emblems, logos, etc. (from the helmet design to "big house" to "Michigan Difference"). However, trademark law does not preclude fair uses of a mark, particularly non-commercial and non-competitive uses. One new media scenario recently developing a body of precedent is the use of marks within titles of blogs/domainnames. Generally speaking, if you are a fan or hater of Coca-Cola, Ford Trucks, iPhones, or Michigan Wolverines, you can use those names and often their logos in a fan site or gripe site. For the hundreds of non-commercial UM fansites and blogs, I would think that use of a Michigan-related logo is fair use so long as the viewer is unlikely to be confused (likelihood of confusion is the standard) that your site/blog is sponsored by / endorsed by / or otherwise commercially affiliated with the University of Michigan.
I'm curious as to how they phrased their C&D letter. I'd be surprised if it was a true demand to cease use of the helmet (instead of a friendly request) -- one should never tick off one's fan base...gripe sites are highly protected. And of course, you probably are considering the press access ramifications of not complying, even if you have two legal legs to stand on. I have a client with a similar scenario in reverse.
That said, the above is NOT to be construed as legal advice and is NOT being provided to you by a properly engaged and licensed attorney, cleric or shaman. I was never here.