Arduino I2C sniffing data

I don't know the answer to the rest of your question but have you read the PCF8574 data sheet to see what it expects and how it responds? Typically any chip at the hardware level sends and receives bytes of data to tell it what to do / respond to what it gets and those bytes are not normally in an easy to read format. To understand them you have to read the data sheet to find out what they mean.