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The fact that he never met her should take some of the sting away. He chose your "application" over hers, and went with you because you made a good impression. It would have hurt a bit more had you both been interviewed. (Maybe you could help her in the future by talking about your resume')
We put an ad in the paper and when all was said and done, we had right around 100 applications come in. We went through them all. For the life of me, why some were placed in the "keep" file and others were rejected is beyond me. With that many to read, simple things can make or break a candidate.
We found who we wanted and she accepted. The crummy thing is, we had already set up 2 more interviews. Rather than tell them, we are going to meet them in case this person doesn't work out the way we hope. (We have had a run of bad luck with our employees.)
A job is a job. I'm sure she understood that only one of you could be chosen. It may be a little uncomfortable to talk about for a while, but when she finds a job, it will all be water under the bridge.
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