As for the level off, it was predicted a number of times earlier in the thread that this could be related to the missed approach altitude coded into the FMC. It is entirely possible that this was not deleted or overwritten to match the MCP selected altitude, and the FMC altitude would be giving flight director guidance and potentially confusing further an already confusing situation.
No this doesn't make sense, VNAV would have to be engaged which is highly unlikely. Even if VNAV was used for the approach, and TOGA not pressed, the FD would have been pitching all the way down as soon as the aircraft climbed away from the approach path until the MAP.