Purchasing a Domain from a Domain Squatter
A domain grabber has registered a domain that I wanted. All they're doing on the site is display ads. How do I get the domain without paying their extortion fee?
This Google Answers page on How to Get a Domain Name from a Squatter has some information that may be helpful. Some of it is supported by knowledgeable individuals while other information is hearsay.
Some suggest that you're in for an expensive legal battle, while others assert that if you have a legitimate business reason for wanting the domain and can prove the squatter does not, then you may have a case.
No matter what, the big question is whether it's cheaper to get the lawyer or cheaper to just pay the squatter.
ATTENTION: The Google Answers link is from 2005! Things may have changed.
UPDATE: Here is the same question on the StackExchange site Pro Webmasters: Purchasing a Domain From a Domain Squatter.
If the domain doesn't get many hits, the person may just give it up to avoid lost revenue. I got my site back after a year from someone who stole it when I did an improper register transfer; granted, it was a low-priority personal site.
You might have better luck just thinking of a different URL. So long as it's short, catchy, and a Google search result, it might work. Hyphens work in hostnames, if that helps.