I recently had an interview for a contract position. I provided a reference for an organization that I currently do contract work for. It appears that they have decided not to hire me but instead contacted my reference to recruit more candidates for the job I applied for (the organizations have many similar programs). I am fine with not being hired but I feel that depending on what was said, that this may compromise my current work and may be damaging to my career at my current job. I feel this is unprofessional and unethical. Am I wrong?

More background - I was planning on keeping my current job and taking on the new job as well. The schedules do not conflict.
I know that the recuitment email when out as I was copied on it as I am part of that group. It had the name of the person who interviewed me in as well as the name of the person I submitted as my reference so I know for sure they have talked.

What should I do? I love my work and this in an important part time job for me. It does not pay well but is meaningful to me as it in a field that I am passionate about.

Its neither unprofessional or unethical. It's the risk one takes when job seeking while currently employed.

This happens, more in some fields than others. I have even seen them hire one person, get him to help hire his friends, and then let him go. Even hire someone, milk him for contacts and information on other companies and fire them.

Welcome to the real world, issues of unethical, fair and the such really does not matter to many companies.