The attorney is incorrect. The H-4 spouse cannot renew her status, because she has no H-4 status to renew. That went poof the instant she used her EAD to work, since employment is a violation of H-4 status. (It's not illegal, since she had an EAD, just incompatible with the H-4).
Therefore, she should not waste money attempting to renew the H-4. She must renew the EAD so long as she remains employed; once she ceases employment the I-485 filing keeps her in legal status.
For the daughter, they can renew the H-4 if she isn't working, since it serves as a re-entry document just like AP. (However, since this is a 7th year H-1, the H-4 would only be good for 1 year, so I would file AP if the I-131 filing fee is lower than the I-539 filing fee.)
Regarding what would happen if the adjustment was denied, the wife would be out of status. However, since 7th year Hs are predicated on a pending GC application, having an H to fall back on wouldn't be much help either. Besides, as long as there's no funny business with the adjustment I wouldn't spend much time worrying about denial.