I regret to inform you that I was unable to accept your offer for graduate studies beginning in the Fall of 2009. Unfortunately so many schools accepted me and I can only fill one position. Due to this fact, I had to turn down many qualified universities. I wish you and your university the best of luck in your future academic endeavors.
Seriously though. I wouldn't worry too much about it. I don't think I rejection via email is a problem. Short and simple should suffice. I don't think anyone at the university will take it personally.