I went to San Fracisco between 26-30 Dec and had exactly same questions, so here's my perpective:
-is really Hilton Union Square the flagship Hilton hotel over there?
Hilton Financial District is in Chinatown, and requires 10-15 minutes walk everytime to Union Square. Hilton Union Square is 4 minutes away from Union Square, with much more restaurants and shops around.
We stayed at the Union Square, and after seeing where both hotels are located, I am happy with my choice. It is the largest hotel in town and maybe not the best, but if you go for Hilton, you can't go wrong. The number of restaurants nearby is huge.
-Are they still not having EL floor/lounge or being renovated?
They don't have EL, but offer you free wifi throughout the hotel. Free continental breakfast is absolutely great, only in one of the days we decided to pay the extra 10$ for the full breakfast.
-Want to have a nice place, like King room high floor cityview, is it high enough to see down to the bay? Alcatraz maybe?
More frequent travellers might advise better, but we got a room on 35th floor with city view and Golden Bridge view. Not sure if you can see Alcatraz from the hotel, as there is quite a big hill between the two
If you want to see pictures, PM me and I'll share the link.
-what's the chance to have a nice upgrade for a Diamond here?
Not sure, but I thought the room we got was pretty nice, much in-line with any other Executive Room I got in Europe or Asia.
-if I book a reward stay, will I have the sStandby upgrade opportunity to pay up on the basic room?
No idea, sorry.