Affiliate Marketing Secrets

I recently interviewed twice with a company that was supposed to be a temp for hire position.
They immediately notified my recruiter that they were interested in me and wanted to extend an offer, but nothing official because they were waiting for the government to approve the funding for the positions.
We went through the motions of doing the background check and everything, the company then decided they wanted to hire me directly (not temp period) so I had to fill out an official job application and all that, which was sent through my recruiter.
No word for a week or so. My recruiter (NOT affiliated with the company) said everything was fine and they were just waiting for the background check and salary approval and all that, I guess. But to not worry.
Today I get a phone call from her saying the company had let her know that they have two employees who are currently not on projects, and they’re trying to see if they can fill the position with one of them.
wtf??? why go through all the motions and making me fill out all these paperwork, call my references, conduct a background check, promise me the job, only to fill it internally?
Needless to say, I’m pissed. I spent a month not looking for another job (currently laid off) because this company had promised me a job, and it was looking hopeful from all the things they were saying and having me fill out.
They said they would let my recruiter know on Monday what they decide, but I’m obviously not hopeful. It’s easier for them to just fill the position with a current employee than a new one, but I wish they had been upfront about this from the beginning.