You have a few people who appear to senior management to have abused the system. Whether this is true or not is irrelevant, the perception is there. Moreover, the perception is that your group is the one that did the abusing, so your group will be under more scrutiny for abosultely everything from now on.
It is hard to get a decision reversed when abuse is perceived. The proper steps would have been to deal directly with the abusers but your senior managers are cowards who chose to punish everyone who was not guilty as well. This is common in the corporate world, unfortunately. Everything is perceived a system problem that must be fixed by system changes rather than by dealing withe the few people who were causing the problem.
There is unlikely anything you ca say or do right this minute to get this privilege back. However, you can design a campaign to get it back in little steps.
First you have to fix the perception of your group as slackers who don't work hard and have to be more closely monitored. One of the things that makes people look like slackers is wroking less than a full 8 hour day, then going home and logging in and working for several more hours at night. People only see that you leave at 4:30 and don't realize that you actually worked until midnight. Same thing with working from home in general. If someone was working from home and someone tried to get an anaswer from him and he was not responsive, then the perception is that the person was not working. The more times that happens, the stronger the perception.
The first order of business is to gain visibility for your group with senior managers so that they understand how many hours you work and that you are responsive to their needs.
Now that you are all in the office, make sure to stay late and come in early (or at least be there for your entire offical working hours if you don't usually need to work more than 40 hours) and make sure that people see that you are doing so. (and by you I mean the team and the managers). Eamisl sent after hours are a wonderful way of showing that you are there and working.
Make sure to respond to requests in avery timely manner especially requests from people senior to you. This means that you cannot afford to turn off your phone, email and instant messenger to concentrate. Right now, the perception that you are working hard and are supportive of senior management needs is actually far more important than the actual work. I know that sounds silly, but until you turn around your senior management's view of your team as slackers there is little else you can accomplish effectively in terms of changing organizational policy.
Next be ruthless is weeding out the actual slackers, if any. It is interesting to me that this happened shortly after the new guy came in and started emulating the managers. (Sometimes managers have more unoffical privilege than workers.) So make sure this person is not the real cause by making sure he is producing. Same for everyone else of course, but since it came up right after this guy started doing it, he is the most important to make sure he is producing and toget rid of if he isn't.
If you are a manager of this group, you need to ahve a serious talk with them about workplace perceptions and visibility.
Once you have fixed the perception of your team being slackers you can work on getting the policy back bit by bit. First step, when you are sick, take leave, stay home and, most important of all, do not work in any way shape or form when you are sick. Do not work extra hours on other days to make up for sick time taken. This is cold season, so the impact on the work schedule should become fairly obvious fairly quickly. It is best if this casues a deadline to be missed. When there is a schedule impact, then you bring up that people stayed home because they were contagious and they could have worked except working from home is not allowed.
Then you suggest that limited working from home when someone has a contagious illness is to the company's advantage and ask for a policy exception for this reason only. If need be point out that it wasn't the people staying hoem and working while sick that caused the earlier problem. Point out that management can monitor these people to make sure they are working.
If they allow a limited trial of working from home when sick, make sure to produce some work that is visible while you are at ahome. Make sure to be available by phone, email and IM all day long and that if you need to lie down for a little while, that you tell your boss, that you will be offline for a few hours but will make up the time later in the day. In other words, if you get a limited priviledge back, make sure to show how responsibly your team is handling it.
Another thing to do is to document when potential great hires turn down the company offers because there is no telecommuting allowed. Make sure to say in management's hearing that great candiate John Smith decided against us because of the telecommuting issue. You want management to perceive that this is an important thing for the company to hire the best talent.
Once you show you can do small occasional things and show an impoact on ability to hire the candidates you want, then after some months, you can ask for full rights to work from home again. If the person who changed the policy leaves the company, you can ask after his or her replacement comes on board, explaining what you have done to make sure the previous problem doesn't occur again.