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Great for that internal! Shows that they value their employees and see their growth and potential. Always a bummer when you don’t get the job you hoped for, but you make it sound like the internal hire would be a worse one. Be happy for them, and say to the company that you really enjoyed the process and getting to know them, congratulate them on the hire and valuing and lifting up their employees, and that you would love to stay in touch for future opportunities. Chin up, but don’t look down at others
The Exact same has happened to me and It really hit me. But I responded in exactly the way you mentioned and a year later I was back and got it.
It’s also ok to feel your feelings, OP. That was a huge amount of time spent on the interview process and in my opinion, seems like the least they could’ve done was spare your time and energy if they knew they’d hire internally. Not everything requires the response of toxic positivity.