As far as I know that's the way it works (barring changes to the ticket after status changes). The upgrade program doesn't screen every passenger on every upgradeable flight looking for those in each status level but merely pulls status holding passengers from all PNR's for travel on a given date. So at T-7 days, it would look for CP's in coach on upgradable flights and process them. At T-4 days it would add PP's to the list, etc.

In theory, it is possible that a gate agent could catch a reduction in status if the change occurred prior to printing your boarding pass (it would show status at time of printing) and take away a free upgrade but the likelihood is almost nil since there's enough reasons that someone with higher status would be sitting in coach while you got the upgrade. Also, all this discussion so far is just for clearing when the appropriate window opens. If you don't clear then and your status changes you'll be considered based on your actual status. This would obviously be the case if you're reduced to the gate dance.

Jim