You should call immediately and split the PNR. Read this thread:
http://www.flyertalk.com/forum/showthread.php?t=773732
or my reply in this thread:
http://www.flyertalk.com/forum/showthread.php?t=826961
To answer your later questions, you can read this thread on upgrade waitlist order:
http://www.flyertalk.com/forums/show....php?p=7421065
but the bottom line is that, yes, once the flight goes to gate control around four hours before the flight, a 1K will trump a 1P on the upgrade waitlist no matter what the instrument.
I'm not sure why you'd want to switch to miles at this point. First, you may not be able to, because only Y/B/M/H fares are upgradeable with miles. Second, if you were on this fare basis, you could have used miles to begin with, and there would be no difference between using an SWU or miles when it comes to clearing the waitlist if you're using a 1K's miles. Mileage upgrades are just as confirmable as SWUs, and for a 1K's miles the clearance priority is the same.
Good luck! And next time, if you're going to be waitlisted, don't link your PNRs!