I never thought there were strict rules governing the order of processing. As alluded to, typically it seems like they clear the upgrade list first, then clear standbys onto the flight, but I've been on flights where they cleared at least some of the standbys well before they cleared the final upgrades. Is this not truly a case of some GA discretion, not breaking rules and/or shenanigans?
There are pros and cons to either approach, I just don't see it as a big deal ... I've certainly heard over the years the common feeling that people already on a flight feel more entitled to an upgrade than someone who just got on that flight, but on the other hand, maybe there's a good reason they got put on that flight.
Recently I was flying DTW-MSP-MCI (all in coach with little chance of clearing), in part because it was cheaper than DTW-MCI, and who am I to turn down some extra MQM and save money for my company or client, but the DTW-MSP announced a mechanical delay so I immediately asked to be moved to the DTW-MCI flight departing in about 45 minutes. They agreed, but the amount of fiddling took some time and they ultimately just issued me a seat request card at about T-35. I figured my chances of even asking for an upgrade were hosed and I hustled to the new gate. However it worked out, the gate agent issued me a FC seat. The flight wasn't particularly full, but I can't imagine I didn't bump some other Medallion from that upgrade, but I have a hard time saying a PM being bumped by a mechanical shouldn't get that benefit, but it is self-serving in this instance. (Don't worry anyone, I asked for and received ORC after the fact
).