Que lástima or que pena?
Better for what? All languages have more than one way to say the same thing, and often one alternative is not necessarily better than another. I can see no significant difference between both alternatives, although I personally probably use "pena" more.
Qué lástima! What a pity!
Qué pena! What a shame!
When meaning 'compasión' they are almost the same, maybe even interchangeable. However 'pena' has other connotations that 'lástima' doesn't have:
It can be a 'punishment', it can be a 'difficulty' and in several countries in Latin America it means 'embarrassment'.
A reply? depends really on what is a shame - if it's some-thing that's happened to a person you could say 'pobrecita/o'
Qué pena is more intensified and can (just hardly ever) be taken as an ironic stance on part of the speaker for facts that are mendable, at least on Argentina and Uruguay, Anyway, they do not take this into account when they realize that the speaker is from another country, qué pena is more common as we move north
-[Francisco chocó el auto nuevo] o [No podré ir a tu cumpleaños]
-¡Oh!, qué lástima
-[Los libros se perdieron con la inundación] // [Mi vecino falleció la semana pasada]