i don't know. i assume if you goto india, you get your passport renewed there. i also assume INS accepts expired passports. i do know someone higher up at the embassy so let's see what happens at the interview.
Just wondering... Have you talked to the Council or just one of the embassy workers? We faced similar problem in out Embassy (not Indian though, in fact worse ), and I wrote a complaint directly to the Council. Let me tell you - they said they'll do my passport right away. Unfortunately sometime those people just don't want to do their work (even though there is no requirement on something).