What should be done when the theory behind a PhD thesis turns out to be wrong?
Why was the theory wrong? "It didn't work" is not the end -- the end is knowing why it didn't work. There are at least two possible answers:


There is some fundamental, obvious mistake at the core of the model that should have been caught a long time ago. In this case, it may be a matter of starting over. It's difficult to produce a paper/thesis if the story is "I made a stupid model and it didn't work." 
There is some previously-unknown reason why the model didn't work despite smart people thinking it would. This is likely an interesting, publishable result. In fact, it could be even more interesting than a paper that just says "we used a model and it worked as expected."


It sounds like the data is valuable as well. Even if it is a matter of starting over again, this dataset sounds like it could lead to a publication or be an ingredient in the new thesis.