The state Director of Elections is pushing Troy to hold its replacement race in February (as per state law), but the city is still claiming that they can wait till November.
I haven't seen the letters, but I can say that we've seen this state-local fight before -- this killed the Nashville mayoral recall. The end result there was that Nashville had to adopt a new law to come into conformity with state law. We would have seen a sure-fire lawsuit on a different type of state-city problem if the Oakland mayoral recall had gotten to the ballot. Knowing nothing of Michigan law, I suspect that the state has the upperhand in the fight.
The other relevant point (mentioned in the article) is that this could be another example of local officials trying to game the recall for their own ends. The replacement vote would end up costing the city $50K. But there has to be some consideration to the political implications of the decision. The ousted Mayor (a Tea Party favorite) had serious support in the city -- she lost a close vote on an Election Day that saw heavy Democratic turnout thanks to a presidential election. It is very possible that she or an ally could win at a poor turnout winter special election. We've seen this happen before in Michigan, and of course, we've seen many examples of officials trying to control the timing of recalls for their own ends. Not saying that it is the case here, but certainly has to be taken into consideration.