Mike, that's what they originally thought, and what was presented in the book Shadow Divers and the National Geographic special. However, it's since come out that she was more probably sunk by two U.S. Coastguard destroyers, escorting a convoy. Take a look at the link on uboat.net to the USCG website that describes the action from their point of view.
It has happenned before, we lost Tullibee, Tang, and there is speculation Wahoo may have been lost this way.
It is a rarety to know the fate for sure in this type if incident since it is not normally survivable-part of Tang's crew was able to escape since she went down in shallow water, not the case with this boat.
I wonder about the large initial explosion, because certainly the Hedgehog round detonating would be unmistakable on board, but not the same as a depth charge explosion.
It would be interesting to see a decient map on the wreck since damage from a Hadgehog would be pretty apparent. http://www.uscg.mil/hq/g-cp/history/WEBCUTTERS/Crow_DE252.html
Here is a link to the USCG page for USS Howard D. Crow- she was an Edsall Class DE (Destroyer Escort.
My personal opinion is that the torpedo theory is a long shot (pardon the pun) since for a U-boat, attempting to take a shot on a DE, especially operating as a hunter-killer team would be a decidedly unhealthy proposition versus going deep and hiding.
They were in a bad position too, in shallow water with no thermocline, so it would be best possible conditions for the escort's ASDIC sets.
In this case, it looks like the U-869 was tagged by the hedgehog spigot morters as per the Coast Gaurd's case. A circular run by a torpedo would leave a single big hole on impact and detonation of the warhead, not two holes.
Unfortunately, circular shots as per what James mentioned are not as rare as submariners wish they were. There's some speculation that the Skipjack class nuclear submarine USS Scorpion may well have been a victim of one of her own weapons. That's why torpedos these days are made with safeties so that they have to run a certain distance befor the warhead arms itself. That way at least, if you eat one of your own, you get some dented metal and perhaps a sudden and very embarrassing "cure" for constipation, but you don't end up as fish food.