He was genin because the village evidently didn't know the power of the 8th Gate. He wasn't Edo'd because of Plot No Jutsu. Infinite 8 gates would be too OP.
I was gonna say Plot, but Kishi actually played this in a very smart way. Do you remember what Madara said when Gai was dying?
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After an Eight Gate user dies, their body becomes ashes from all the exertion they go through. Gai's very blood was literally boiling to make the aura around him if I remember correctly, so it kinda makes sense. That said, Maito Dai had no DNA remnants after he sacrificed himself due to his body turned into ashes, making it impossible to revive him.
As for why Dai is a Genin, I would assume that this is because all he has are the Eight Gates. Not even the Taijutsu would be that good as, if it were, none of the seven swordsmen would have survived his encounter, when some clearly did.