OP's sole remedy is to claim EC 261/2004 reimbursement (not compensation) from the operating carrier for the downgrade. That would be AZ, not DL. The reimbursement is 75% of the base segment fare and may thus be a significant amount of money.

OP - Simply make a claim to AZ. Keep it simple and short and leave out the extraneous and irrelevant items. All that matters is the you were confirmed in PE and downgraded.