Its not quite clear what is going on. A few people have reported what you are seeing (I availability but not upgrades available), however personally I have always been able to upgrade when I class was available. In fact I have asked them once and they specifically said that the only limitation was I class availability.
I know that doesn't help you right now, perhaps what you could try is call back and try one more time. If they again mention that upgrades are not available you could specifically ask about I class availability. Perhaps they do not see I class, or perhaps they also check some different parameters for the flight.