AA's website clarifies that:
Before you get to the airport, requests for systemwide and mileage award upgrades are processed independently from 500-mile upgrade requests.
At the airport, upgrades requested will be prioritized in this order:
Systemwide and mileage award upgrades
500-mile upgrades on purchased tickets
500-mile upgrades on award tickets
So for low-spend EXPs like me, we're faced with the dilemma of whether and when to request a mileage-copay upgrade. If we request a mileage-copay upgrade in advance, we risk losing a complimentary upgrade that clears before the 4-hour mark, but also increase our chances of an upgrade at the airport, by trumping those with higher spend.