It really depends on the time you are visiting. Don't expect much of a chance during Spring Break. You have a better chance getting an upgrade to the front of the Ocean tower than getting a suite. The partial ocean view rooms are actually pretty nice. The palace tower rooms were recently updated. If you want a nicer room, try to go there. The Ocean hasn't been updated yet because they are moving (albeit slowly) to convert the building to time shares.

Yes, you will get all Diamond benefits using points including the added benefit of not having to pay the daily resort fee. (At least that was the policy). A diamond paying will have to pay the daily fee.