Black Jack rule?

First time I saw this although it seems like it might not be that uncommon.

I'm on first base, my wife is in middle and player X is on 3rd base.

Dealer was very good and just skipped over you when you were 17 or above. (Personally, I hate it when I have 17 to 20 and the dealer makes we wave (waive) off the hit.)

I had 17, wife had 9 and player X was splitting Aces. Dealer skipped right over me and my wife and dealt player X a 4 then said, "Oh crap". Called the supervisor over.

The Supervisor said to discard the 4 and we could play our hands out or surrender them and get our money back. Player X was told to surrender an Ace and just play one of his Aces.

Is that right?

Supervisors usually have a good deal of discretion when making these calls and generally will do what is most favorable to the player.
I'd much rather have a single Ace than a pair of them. You have a 4/13 shot at a 3-2 payout and are heavily favored to win the hand.

They will normally "burn" a shown card

What was the dealer showing?

I'm confused... if the dealer burns the 4...why would 3rd base have to give up one of his aces?

I can't see a reason for this

Dealer was showing a 10.

I thought they would have burned the 4 and then started with me at first base to see if I wanted a hit and just played the hand out from there letting 3rd base keep both his aces.

I agree with you. That sounds like the most sensible thing to do.

Sounds like it was overall done fairly, but I've never seen a player asked to surrender a hand under any circumstances.

How did it work out for all of you?

We both surrendered. Dealer had 20.

Probably a good example on why dealers should ask every player if they want to hit/stand instead of just skipping players who have 17 or more. Sounds like the dealer thought your wife had 19 and was just skipping over her.