Just to add to this. I contacted their customer representative for the fourth time and here is the answer:
"Please be advise that we won’t be able to add waitlist to an existing booking. For waitlist redemption ticket, it’s only available for new booking. It’s not a new policy (because I asked). There’s really no way for us to add waitlist to an existing booking."

So yeah, SQ won't allow miles upgrade placed to waitlist. I won't pursue this further.