Vinny, it seems that the chronology goes something like this:
1:Applied in time
2:Application refused with right of appeal
3:Appealed but appeal dismissed
4:Requested reconsideration directly from UKBA but no decision
5:Applied again
6:Student application approved
The gap is between the appeal being dismissed and a fresh application being approved.
Case law actually backs UKBA up on treating it as a gap and refusing ILR.
There is this case for example:
http://www.ait.gov.uk/Public/Upload/j22 ... ladesh.doc