Oh for goodness' sake, did barely anyone read the OP?!
She hadn't booked the flights- just tried to: that's why she got the error message telling her to ring them. What it means is that 4 seats (or however many) are no longer available in the price bracket she had booked. Yes, it would have been simpler if the Virgin site had just redirected her to the booking page to rebook at the new, higher price: but it didn't. There's nothing underhand - plane tickets are sold in various price bands, and it's not uncommon for them to sell out
It doesn't mean (necessarily) there's no seats left on the plane.
Similarly - Virgin haven't got her money: it's just showing as gone because the bank have confirmed she has it when she tried to make the booking - which hasn't gone through. So it's like when you use your credit card as a deposit on a hire car- it doesn't take the £1000 away, but it authorises it in the event you nick off with the car.
OP's mistake is that, if she could have get the tickets cheaper elsewhere, taking into account the difference, she didn't ask them to refund immediately, at once, not including speaking to Dave. If she'd done that, she very likely would have had the money showing back by the end of this week.
If she couldn't have got them cheaper, including the extra price, then she needed to tell them to go ahead and book, and then would have had the flights etc arranged.
OP clearly got into a state, understandably, given how emotive the issue is because it's connected with her dad etc and hasn't done either of these things, so it's all currently in limbo. She needs to decide to do one or the other and it will be resolved, as some PP have pointed out.
PP frothing at the mouth and berating Virgin here are not helping the situation: Virgin haven't done anything wrong, haven't done anything underhand, haven't done anything you can report them to anybody for
It's just that their online booking system is clearly a bit illogical in how it operates, by not telling you once you've hit "pay" that your flights are no longer available and sending you back to rebook, and instead asking that you ring them (as OP did).
Ranting at her about how shite Virgin are is just cranking up the tension for her: this is very easily fixable, before Christmas, and doesn't need to involve contacting the CEO. The ranty actions some PP have suggested would just make her look illogical, deranged and ignorant, and she's none of these things: just stressed and fed up, but with a problem that can be solved very, very easily and simply.