The 1.0.0.0/8 range was owned by IANA from _1981_ up until 2010, when it was transfered to APNIC. (The 2.0.0.0/8 range was also owned by IANA until 2010, thentransfered to RIPE NCC).
If you want to get technical, use of the space could be construed as theft.
As for the continuity issue, it was stated that it was an old device, so they have no responsibility to continue supporting it, and considering the age of the device in question, it may not be able to connect to the existing network.
Reversing that would likely require AT&T to make a firewall change to literally every piece of equipment they operate, and that's assuming that they don't use the blocks internally. That, and I can guarantee that some customer, somewhere, would be using whatever IP they chose.
I'm eagerly awaiting your evidence for this statement, which to my knowledge is entirely incorrect.
So far's I know, existing uses of 1.1.1.1 have almost universally been illegitimate (e.g. captive portals, internal-ish services, …)