I'm not sure this is true anymore. Been a lot of discussion about this on FT, but both the discount (G) and non-discount (Y, although somewhat of a special "Y") government fares can be upgraded with SWUs (and stickers if applicable), I've done it before for my wife who sometimes fly's on government fares (but is not a member of the military).

And let me tell you, those fares are not necessarily heavily discounted compared to public fares, they are just fixed contract negotiated fares so there is less variability.