Reply from OP
I was 4th on the upgrade list and not cleared for an upgrade. I'm not ranting, just pointing out that the gate agent on DL 1655 ATL-LAX told me she had just sold an upgrade at the gate. Obviously the people in front of me were also all Diamonds so they were not upgraded either.
When I asked her when they started doing this she told me a few months ago. When I pointed out how unfair it is to Frequent Flyers she agreed and said she did not like doing it either. I called the Diamond Medallion line, explained the situation, and they said they could understand why I thought that was unfair and encouraged me to send delta a formal complaint which I did. They did not say Delta was not doing this or that it must have been a glitch.