This case study supports what most commentators have thought for some time - that a blanket ban on tenancy applications from people on benefits could breach equality laws.

Landlords have increasingly been insisting upon "no DSS" (i.e. no tenants on housing benefit) because of the changes to the way that benefits are paid.  Instead of rent being paid directly to landlords, as was the case in the past, benefits are now paid directly to the individual, who then has to use those benefits to pay rent (amongst other things).  In the eyes of many landlords, this increases the risk that tenants won't pay, because of competing pressures on the money they are receiving in benefits.

The problem with this approach, as with many "blanket policies" in that they are potentially discriminatory.  The majority of adults in receipt of housing benefits are women, and so this blanket policy will affect more women than men - hence the argument that it is discriminatory.  Such policies are also potentially discriminatory against people with disabilities.

Although this case didn't go to court, the fact that the lettings agency paid compensation suggests they were far from confident that they could justify their position.  

So, Landlords adopting this position in future do so  at their own risk.