Getting skunked sucks. Don't worry, it hurts a little less every time.
I was in a similar situation last week. My two partners and I had cobbled together an offer on a pretty nicely renovated duplex in our area. We were kinda fishing on terms, but we had spent hours researching and visiting, and we really liked it. The listing agents (frankly, a sloppy husband-wife team) came back fishing for a better offer 18 hours later when they got another, having still NOT shown the seller ours by that point. As our agent, I decided to inform them that we were flexible on terms but would not increase our offer without seller feedback. The seller was a corporate flipper and took the easy deal at asking price.
Whether they ever saw our offer, or were advised of my willingness to negotiate, I'll never know, but their crappy communication and perceived lack of professionalism left a bad taste in my mouth. I was annoyed for a few minutes, but one of my partners was mad for days. Meanwhile, I channeled my frustration into a renewed search, reevaluated some known prospects, and started haggling with another agent to find another prospect.
It's easy to take things personally and imagine all sorts of BS and betrayals when the process is a black box. But either way, what can you do? Win some, lose some, go back out swinging. We're close to finalizing terms on a better deal now. Your dream house is still out there waiting... don't worry, you'll find it, or build it, someday. :D