1. H-4 is her personal application. All she needs to do is send a letter to USCIS stating "I hereby withdraw my application for H-4." Attach a copy of the fee receipt for H-4 application that comes from USCIS. I see no need for you spend money on legal fees, but that is your choice.
2. If nothing else works and she does get the H-4 approval, just have her step outside USA and reenter on F-1 visa and get a new I-94 from CBP at the airport.
3. Generally speaking, no.
4. Let your employer know. They should be able to withdraw for you. If not, do it yourself as I have suggested.
Unless the context shows otherwise, all answers here were provided by Rajiv [1] and were compiled and reported by our editorial team from comments and blog on immigration.com [2]
Links:
[1] http://www.immigration.com/law-offices-rajiv-s-khanna-pc
[2] http://www.immigration.com
[3] http://www.immigration.com/faq/nonimmigrant-visas/general-nonimmigrant-visa
[4] http://www.immigration.com/faq/nonimmigrant-visas/f-visa
[5] http://www.immigration.com/faq/nonimmigrant-visas/h-visa