With Hyatt (back in the Hyatt Gold Passport days; I don't know if it has changed with World of Hyatt), such a change was only possible if the room was available for the free night at the time of the change. In other words, it was effectively make a new reservation and cancel the old one. It would be nice to know if IHG handles this in a similar way.
If I had a night reserved with points, I would not cancel in the hope that the room would become available for the free night. Although there is the small chance that someone else could grab the room in the few seconds between a cancellation and a new reservation, I think it would be much more likely that the room would not become available for the free night until some batch process ran at a later hour. There is also the situation where more than one reservation would need to be cancelled before a room became available for the free night.
Good luck, and I hope someone with knowledge IHG's policy will educate us both.