Sorry to hear about your bad luck there pal. It's a stressful situation you're in and as you're at the beginning of the 'insurance company saga' that is likely to be ahead of you it may get a little bit more stressful. I'll tell you what happened to me last year in case it's any use to you.
I had a Mini Cooper S Works edition and a lady neighbour reversed into the side of it causing rear panel and trim damage (relatively minor) but also set off the side impact airbag which ripped its way out of the passenger seat. I had paid £6250 for the car two years previously and had added 20,000 miles to it. Her insurance company sent out an "engineer" (laughs) who promptly declared it a Cat D. The justification for the write-off was because although the panel damage was repairable (pull the dent out and re-spray, and the airbag unit could have been easily replaced, the two-tone leather passenger seat "couldn't be repaired" and must be replaced to achieve the 'good as it was pre-accident' condition that the insurance company has to achieve. Personally, I saw no issued with having a new airbag unit fitted and the leather seat sown back up - it had only ripped on the seam. Incidentally, I got a friend who works in the trade to give a quote for a full repair (sewing up the seat and not replacing it) and his conservative estimate was £1500. I understand from speaking to someone in the insurance industry that insurance companies are quick to write-off cars because of the risk that the repair costs spiral beyond their estimates. So they put in a cheeky offer to get rid of the risk, and let you keep your car which is just another liability to them.
So anyway, her insurance company offered my £3000 and said I could keep the car which they estimated to be worth £800 = total £3800. Which I politely declined. Then for over two months we played a ridiculous game where I pleaded the case that pre-accident my Works edition fully-loaded low mileage Cooper S was worth a lot more than £3800. I had to send them evidence of the Works upgrade, the factory-fitted extras, pictures of the car to show it's condition pre-accident as well as examples of similar spec (extras, condition, age and mileage) cars and what they are selling for in the current market i.e. do their job for them. I thought I had the upper hand in this argument as they were paying for the hire car I was using and the longer this game went on the more it would cost them, so it was in their interest to settle with a sensible offer - I had to show them copies of my bank statements to prove I couldn't go and buy a replacement car whilst we was trying to agree a settlement figure to show that I wasn't abusing the hire car facility. After persistent arguing - several nasty phone calls a week - we agreed on them paying me £4300 and me keeping my car, which according to them was worth £800.
So in the end of it I effectively had a total of £5100, which based on my research was in the ballpark (although at the low end) value for the car pre-accident. Although I actually lucked out because the insurance companies "engineer" used the Parkers site to determine the value of the car pre-accident, and because the Works upgrade wasn't a factory option for the year of my car it didn't show up on the Parkers site and therefore he under-valued the car. I actually sold it in it's battered Cat D state for £2000 on eBay - which I think was good for the buyer based on the estimate I had for the repair: £2000 (purchase) + £1500 (repair) = £3500 for a Cat D car. Similar spec Cat D's were selling for around £4500, so that person could have made a grand profit. For me, given the insurance company had paid out £4300 and I sold the car for £2000 I had a total of £6300 which was £50 more than what I'd paid for it two years ago. I doubt very much I'd be so lucky with the outcome next time, and I would say the whole saga was a massive pain in the proverbial, and quite stressful at times. From the accident to the final pay-out it was roughly 3 months.
On another note, the replacement car was my VX200 that I have now 
It is Cat D. I wasn't too put off by buying a Cat D, partly because of my recent experience of the Mini Cooper being written off with such repairable damage. But also because the owner (a garage in Wales) was able to show me the cause of the accident that made it into a Cat D and the repair work they did to fix it. I think that if you retain all the evidence (pictures + engineers assessment from insurance company) and get it repaired by a reputable company that are willing to document the repair or offer some kind of testimony of the work that should mean the car isn't de-valued as much as a Cat D.
If I was in your position I would argue for the "correct" value of the car (i.e. a suitable cheque from them) and argue that the post-accident value of your car is pittance meaning they're have to increase their cheque, and then keep the car and get it repaired. As long as you're getting a reasonably big cheque from the insurance company you should cover yourself for a) a bigger damage repair bill than expected and 
the anticipated depreciation after being declared a Cat D.
Good luck my friend.
