She said "It's good news; we are now free to submit On Common Ground to new agents/publishers, because Mundania Press turned it down! OK, granted, it wasn't quite the great news we were hoping to hear from them." And she has a point. Two of them.
Each rejection of a work can/should be viewed as a new opportunity to find it a home with someone who really appreciates it. If an editor or publisher offers a contract, but doesn't really believe in the work, they aren't going to be giving it their best shot while simultaneously tying up its possibilities elsewhere. So, it should soon be venturing out again on missives with the mission of finding its rightful place in the publishing world.
Yes, naturally, I'm a little a disappointed, but I am trying to look at the bright sides: Mundania doesn't pay advances, and many other publishers do. Perhaps, in addition to landing a publishing contract, On Common Ground will also bring home a nice pretty advance check. (Always welcome.) Also, though I don't have any actual issue with the printing format, I'm not quite as fond of the larger-sized paperbacks so now perhaps it'll be in the more common trade paperback style.
However, when you boil it all down, it got rejected and that never feels quite as nice as a chocolate-covered banana split with sprinkles. In the words of one of my 8th grade students, "Well, they're just stupid-heads and they should have bought it!" [Specific terminology changed to protect the less-than-innocent.]