This same thing happened to me last year. i was on the way to the hotel from the train station and they called and said they were sold out. I said that I was on the way and we'll talk when I get there. Lucky for me I did that. According to Travelocity, there were no empty hotel rooms within 50-60 miles. When I did get to the hotel, they still were not giving me a room so I sat in the lobby, called Hilton, and went back to the counter. Eventually, after about 30 minutes, they found a room at the next door hotel. They "walked" me and paid for the night.

They didn't want to pay the penalty for walking a diamond member. The policy is that "An immediate inconvenience compensation of $200 USD (or local equivalent) cash must be paid to the member." It is my understanding that the immediate cash payment is a penalty that is supposed to discourage the hotel from ever walking a diamond member. Hilton Diamond desk issued me a check after both the diamond desk and I waited for the hotel to send it to me. I'm unsure if that Hampton Inn ever actually paid Hilton for covering the $200 for them.

Yes, I simply asked them to honor my reservation, even when they kept insisting they didn't have a room. I had nowhere to go. They eventually found me a room at the hotel next door, and my thought is that they wouldn't have done this if I had just walked away on my own and wasn't a diamond member with a confirmed (guaranteed) reservation.

It happens.