Why didn't Harry choose to be with her?

As soon as Harry tells her that he has to meet Hermione later, she starts bringing up her poor dead ex-boyfriend and telling her that some Chad had asked her out before he did. Then she storms out crying.

I wonder how she dealt with Cedric's female friends.

You have to understand that Harry Potter was not written for men and male pleasure. Luna is the choice for the average male reader of fantasy, a socially awkward guy that wants a weird GF that can relate to him on an emotional level. This reader self-inserts as Harry, despite the fact that Harry is a boorish jock in nerd's clothing. However, Harry Potter is fundamentally about how low-class Hermione wants to move up the social ladder through her wits and rub shoulders with the aristocracy through her personal merit and show up everyone. Unsurprisingly, Hermione is Rowling's self-insert. Harry is Rowling's fantasy, and represents an opportunity for low-class Hermione to get in with a jock and wealthy man. It's no surprise that Rowling regretted pairing up Hermione with Ron. Luna is the type of girl that people like Rowling scorned and ignored in school, and pairing her up with Harry would be like a personal attack on Rowling.