I don't think there's anything in the T's & C's of the HHOnors agreement that specifies rate requirements for receiving HHonors benefits. If they were taking them into account, and it wasn't mentioned in the T's & C's, that's completely unacceptable.

There's only one thing to do -- defect to Starwood. Or, if your travel permits, defect to InterContinental. Top tier at IC gets upgradeds on any rate, guaranteed reservations at 24 hours, guaranteed 8am check in, and, the holy grail of all benefits -- free minibar. Last year with IC I got a suite on around 45 of my 50 stays.