I believe you need to shrink the logfile rather than the database. I have
come across this a number of times and there may be an excellent
alternative, but this works fine for me. You need to do a full database
backup first. The log file is then effectively redundant. You detach the
database (right click database name in Enterprise manager and use detach).
The data files remain on the system. Leave the data file alone, but delete
the log file (BE CAREFUL HERE) using windows explorer. In Enterprise manager
right click on server and all tasks then attach. Choose the data file. It
will show a missing log file but will create it when you attach the log.
This creates a log from scratch and you can even resize it before you give
it back to the customers.

Not entirely sure why a log grows huge even though you back it up (and
therefore truncate it), but it is to do with not clearing the virtual log
compartments.