cmcramer,
Leaving aside the question of whether or not the initial action described was properly ruled interference, you are correct - upon the call of interference with the defense's opportunity to field a batted ball, the ball is dead, the interfering runner is out, the BR is awarded 1B, and other runners are returned to their TOP base unless forced by the BR's award of 1B.
(The 1st baseman can go wherever he likes as long as he's in fair territory when the pitcher gets ready to pitch.
)
JM