Except that the OP was using the TWOV against how it was intended to be used. The OP wasn't transiting China. He was transiting Japan to get to China as his ultimate destination. The TWOV was designed to help Chinese airlines carry more connecting pax, not for businessmen to avoid getting a visa. Anyone looking at his ticket would be hard moved to say that Shanghai was a transit point!

With a USA-NRT-PVG...stopover....PVG-USA flight, I can completely see why the agent had problems. It could have been solved by only checking in as far as NRT, then checking in again there.

However, if the ticket was constructed so that NRT was a transit point only (as I imagine it was, to make the ticket cheaper), and PVG as a stopover, then perhaps DL aren't able to do this (and quite rightly so). The ticket was USA to Shanghai return - the outbound just happened to have a change of plane in Tokyo. Tokyo wasn't a destination, or start point. As far as DL are concerened, you are flying to China, and need a visa. Your next destination is the USA. As such, you can't use a TWOV.

Whilst physically the OP was travelling from Japan to USA via PVG, it think he was asking for trouble. Had he spent a night in Japan, there wouldn't have been an issue.