I797 expired during USCIS review

Hi,

I appeared for H1b interview in US consulate and my visa was refused. The case was sent back to USCIS for review.

The I797 (notice of action) expired during the review. My question is does the USCIS work on expired petitions ?

My second question is the questionable decision made by consular officer.

After the case was sent back to USCIS, my company applied for new H1b and we got new I797. With this I797, I went for visa interview and unfortunately , the VO told me to wait for the review of old petition. Is the VO decision questionable?

If there was problem with first case ,USCIS would not have approved new I797.

Please guide me. I am very disappointed after the second interview.

Thanks
Lostpacket