TD,
Send a letter to each of the major credit bureaus contesting the collection. Write a detailed explaination of your side of the story. I've found that most creditors will "revise" their position when some pressure is brought on- particularly over such a small amount.
If you have proof that the collection was paid in full, I would forward that along with a statement that while you fully contest the collection, you paid it in full as a quicker resolution. The credit bureaus will open investigations and there is a chance that it could be removed from your history.