as per this forum discussion: http://moodle.org/mod/forum/discuss.php?d=155112
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Scenario.

Lesson settings:

Grade options
Practice lesson no
Custom scoring yes
Maximum grade 10
Student can re-take yes
Handling of re-takes use mean
Display ongoing score no

Flow control
Allow student review no
*Display review button yes/no*
*Maximum number of attempts 2 (or any number > 1)*
Action after correct answer normal
Display default feedback no
Minimum number of questions 0
Number of pages (cards) to show 0

Case #1
Display review button yes

Q1 wrong choice:
You have 1 attempt(s) remaining
Unfortunately you cannot earn this one point, because your response was not correct. Would you like to keep guessing, just for the sheer joy of learning (but for no point credit)?
Yes, I'd like to try again

Q1 wrong choice (again and all further attempts.)
(Maximum number of attempts reached - Moving to next page)
Not quite. Would you like to try again?
Yes, I'd like to try again

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Case #2
Display review button no

Q1 wrong choice:
You have 1 attempt(s) remaining
Continue button
Q1 wrong choice: (again)
(Maximum number of attempts reached - Moving to next page)
Continue button
goes to next page
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Case #2 works as expected, but the displaying of messages in Case #1 is wrong.
When Display review button is set to yes, the Maximum number of attempts setting is irrelevant: student must answer the question correctly the first time to earn the point; re-trying to answer the same question won't get him any points, as the "Unfortunately etc." message points out.
This linked behavior of the Display review button and Maximum number of attempts should be made clear in the online help.

Consequently, When Display review button is set to yes, the displaying of the 2 following messages is irrelevant and misleading:
You have 1 attempt(s) remaining
(Maximum number of attempts reached - Moving to next page)

I will shortly attach suggestion patches against 1.9 and 2.0 to remove the displaying of those messages.

PS.- The wording of the Display review button setting is confusing, because it has noting to do with the Allow student review setting. I suggest renaming it to Display Try Question Again button.