Is it legal to a program to send out a letter saying they won't be ranking me?
Yeah it happens. Honestly they are doing you a favor, now you know not to waste a high rank spot on them.
Yes, you are correct. The only thing that you gain by being prejected from a program is the fact that won't be disappointed to not match there on Match day.from what i understand, it wouldn't hurt you in terms of getting your second choice program if your #1 ranks you low/DNR as long as your high enough on your second school's list. Is this still correct?
Yeah it happens. Honestly they are doing you a favor, now you know not to waste a high rank spot on them.
As others already noted, it is impossible to "waste a high rank spot."
Also helpful to know that one of your interviews effectively didn't count, when planning how many total interviews to go on.