You are correct and it is what it is...apparently.
We are 6 week into the program and 2 separate agents "confirmed" to me this week that the upgrade system for sponsoring worked as follows: the sponsored guest is assigned the SE's aeroplan number for upgrade purposes. Special classes they just went through to learn the new system it seems.
Listen, i'm quite disappointed since as far as i was concerned, this was a very well thought out perk for SE's.