1.You had better to call USCIS to get detailed answer.Before my LD had similer situation,asked many chinese lawyers and got different and confused answers.Finally,my LD called USCIS and got detailed answer and steps
2.As for your LD H2 Visa,you just refill another 769 form(for H4) and fill true expired date of your LD H1-b and fill where to get H4 Visa(for example,canada ,etc.)
3.As for cancelling H4 and changing to H1,in my opinion,you just transfer your LD's H1-B to another new company.You don't have to cancel H4 application.