The game is supposed to end that way. The devs just released v2 of Act I, which includes, in the patch notes, a screen declaring the end of the Act so that people will know that that's supposed to happen.
I loved all that side stuff, especially the church.
It seems to me that many are viewing this game as the downfall of the Rock Band brand. To that, I offer two retorts: 1) No, that was Lego Rock Band 2) This is not that bad a move
Allow me to explain #2 (#1 stands on its own). As Activision digs through back catalogs of classic rock, never coming close to anything like The Beatles or The Who, or even AC/DC (which to me makes more sense as a Guitar Hero game, but I digress), Harmonix has chosen one of the few recent bands with A) a sizable catalog of existing music, B) potential for future *new* DLC, and C) an almost universal fanbase.
Now, before you take point C and start throwing your beloved Dookie albums at it in disgust, remember this: You still like Dookie. Other people still like American Idiot, and some (God help them) have even stuck around for 21st Century Breakdown. Dookie tracks will be in the game. And curiosity created by that will drive you to this game in some capacity. In closing, you may not like where they are now, but the beauty of this game is that you can go back to then. You know. Then.