Something somewhat similar happened to me recently. Traveling as a family, so myself +3, on paid coach tickets. Since I am EXP, just like you as a Platinum, I was able to reserve seats for the entire party in MCE. I then later split the reservation 2 and 2 and linked them so that I would at least have a chance at complementary upgrades for myself (actually my wife would take my place) and one companion.(one of the kids). Both upgrades cleared ~T+1 (yea!), but at the same time that AA upgraded two seats they took the remaining 2 members of the party and moved them back out of MCE into row 12 or something. Not a huge deal, as it was a short flight and I just sat back in coach with one of the kids but it was unnerving that they would move people out of confirmed MCE seats without any notice.
That said, AA does make it clear that elite benefits only extend to passengers traveling on the same PNR as the elite, so when I split the original record I knew that the 2 people not on my PNR lost status but I thought linking the records would protect them, I was wrong.
In your case, when you got the first class seat my guess is you you effectively split your PNR and therefore your kids lost their status and when you inadvertently brought this to AA's attention they moved them likely to make room for other elites or to try and sell an upgrade to their MCE seats. The irony of all this is that my understanding is that the reason AA issues a separate PRN in these situations is solely because AA"s IT system is not flexible enough to have multiple passengers in different cabins on the same PNR, so it's really an artifact of an IT bug and not an official policy. (The crazy thing is that they WILL allow you to link two separate PNRs for the purpose of upgrade wait lists !!)
With all that as a background, from a customer service perspective it is appalling that they essentially exploited this IT bug to move your kids out of MCE especially when it was you who brought the situation to their attention. A truly customer-oriented company would not only not have moved them, but would have apologized to you for its failure to inform you of the impact of the change. Unfortunately in my experience AA generally is not a customer-focused organization and does not train its employees as such.