Let me see if I understand this correctly. If things are as the OP says they are, as a 1K, I should be able to do the following:

- Waitlist for complimentary upgrades as I normally do.
- If I clear the free upgrade, great.
- Before time of departure, if it looks like I will not get the upgrade (based on my position on the upgrade list, and how many FC seats are available for sale and/or not checked in yet), then approach the podium and ask if anyone of lower status purchased a TOD. If so, and I'm willing to pay for it, then they must give it to me instead, refund the other passenger's TOD fee, and send him back to coach.

That doesn't seem quite right, but appears to be what the OP is describing.