Indeed - I would normally expect that they would observe the common practice of not upgrading status until the necessary flights had been flown.

Although the terms and conditions did seem to leave it open to interpretation that the upgrade would occur once they'd verified your booking, but that it could be taken away again if the flight was cancelled or refunded, the logical way to implement it would surely be to wait until the flight was taken (easier for them to do nothing until all the requirements have been met, rather than to have to upgrade everyone immediately, then later downgrade those that changed or cancelled their bookings).