A combination of three personality traits:
#1 - Current occupant is a jerk.
#2 - Upgraded passenger is a wimp
FA's are trained to deflate not inflate situations. Where there is a reasonable alternative, that's what a good FA does. Had there not been closet space, I suppose that the FA would have returned and asserted herself. OH space is neither reserved nor guaranteed.
I would have simply placed my bag in the OH. If that moves another bag, that's fine. Not like I am moving someone's bag 20 rows back. Same thing in reverse. I don't mark off the OH space to see whether my bag got moved.