What exactly does that mean? Did they find your name in their computer? Or is this just a standard reply for anything they can't answer? Have you got any confirmation from Royal Mail that they delivered your application?
The HO is supposed to send you a certificate of application "immediately". If they really haven't done that, they are in violation of the law and you should probably write a registered letter to their complaints bureau, letting them know that you will take the matter to the European Commission if they haven't confirmed your application by a date of your choice.
Secondly, you can always ask for your passport to be returned while the application is "being processed" - this does not cancel your application.
Hope this helps.
Sebastian

 

Easy: phone the Home Office and ask for your passport to be sent back. Note the special number to call: http://www.ind.homeoffice.gov.uk/applyi ... fpassports .