I have been out on medical leave since April 2, 2005. On August 9 I was sent a letter stating I no longer qualified for FMLA where my position was protected to Medical leave where upon ability to return to work I may not have a job. On August 23 I was released from my surgeon I notified employer and it took tlii Aug 29 to get the reply that my position was no longer available, there is a similar position available 100 miles away or a local position at 2/3 the pay I was making and before any of these positions were available to me I would have to go for an employer paid 2nd then 3rd opinion. Are these actions legal and what if any are my legal options.

Yes, this is legal. You have job protection only for 12 weeks. Once 12 weeks are up, even if the employer chooses to hold your job longer, they are not obligated to return you to the same position. They do not HAVE to hold your job at all once FMLA has expired. If you went out on medical leave on April 2, your FMLA expired roughly the end of June or the beginning of July. After that point, your job protection had expired.