Rule for bets when someone is all in

[varoadstter]

I was playing at a home game last weekend when the following happened:

Game is $1/$2 NLHE

Preflop:

Player A bets $15
Player B goes all-in for $16 (a $1 raise of the original bet)
Player C calls

Player A tries to go all-in for about $50 more but is told by someone at the table that he can't raise because the all-in before him was for less than the big blind. The guy running the game is not present so a free-for-all argument breaks out among the players about whether or not Player A can raise for $50 or not.

Eventually, he relents and the hand goes on. He was holding AA and lost to a straight on the river. He was furious, cashed out, and left.

Eventually the guy who is running the game comes by wondering what the hell happened and the people at the table fill him in. He says, "Of course he could have gone all in!"

Now, I completely understand that if the house says he can go all-in, then that's the rule. That's not my question. My question is what is the "normal" way this situation would be handled? I would appreciate written responses as well as poll responses.

Thanks. I'm trying to learn about this in case it every comes up at my home game.