Sorry to hear of those experiences Nonnimouse.
I'm never quite sure if I would prefer being kept in the loop (as in, there is a potential - actually no, this one won't work out - another potential - again, won't work - another one - yep this one can go ahead!) or if I'd prefer not hearing anything until there is quite some certainty. Waiting without hearing anything can be very hard; as being knocked back like that probably is, too.
From the child's perspective, it may save time if potential adopters are sought and contacted and provided the necessary information for decision making with, before there actually is any certainty. Then, once the certainty is there, things can move very quickly; rather than then having to wait for potential matches being identified, them getting the info, having time to digest it, maybe SWs need to choose between two or more sets of potential adopters...
So if all this can be done beforehand, that is probably better for the child; and as it is hard both ways for the prospective adopters, I think I lean slightly towards being told about potential links even if they are still uncertain (for whatever reason).
Regarding 'what's happening here?' I think it may be a local thing. I believe LAs differ strongly as to their position towards FCs wishing to adopt the children they are fostering. Some strongly discourage it. Some are happy for it to happen if the children aren't easily placeable but will otherwise discourage it. Some will positively encourage it and always ask the current carers first, so if a placement order comes through, before they even start looking for possible matches, they will ask the current FCs.
So this is pure speculation, but maybe your LA has (recently or since always) taken the approach that they want to minimise the number of moves for the children and therefore they do encourage FCs to consider adoption. I think this may actually be one of the government targets (or rather, an aspect on which LAs are 'scored') - reducing the number of moves - which can obviously be achieved by getting FCs to adopt. By looking for alternatives at the same time (so, asking you to consider a particular LO at the same time as asking current FCs to consider adopting) they are also trying to reduce timeframes/avoid delays for the children, which is also an aspect they are scored on.
Also, if you read the fostering boards, you get an impression that FCs for babies 0-2 are not in much demand at the moment (though I imagine that this varies regionally, too). So I can imagine that LAs aren't too sorry to 'lose' FCs who only did babies anyway; there are plenty of others to take their place. Whereas they might still discourage highly trained and experienced FCs of older children from adopting, because that would usually mean that they are then down a FC!
From FCs perspective, as they aren't per se approved to adopt, they can't apply to adopt until a child has been placed with them for 12 months, I believe. So, your thought that they are holding on to the fostering allowance until there is a whiff of a link, then decide to adopt; doesn't make sense (unless child has been with them for more than a year already). On the contrary, even if/when they do indicate that they want to adopt this particular child, they need to be approved to adopt first, so they will have to keep getting their fostering allowance whether they want to or not - until they have been approved and matched!
So it would seem to me that one thing that may be happening here, is that your LA has an abundance of baby FCs, and is trying to achieve 'targets' concerning limiting numbers of moves, and shortening times to permanent placement. Also that the feelings and needs of prospective adopters are not really being given much priority in all this.