ANDREWCX, the use of one members FFP's or UC's for a J upgrade for a travelling pax (in your case, your Aunt) is based on the "honour' (or 'self assessment") system (like the Tax Office) - QF does not check prior that the person meets the
T&C rules. Also see
here for additional information.
Aunts and Nephews can have different surnames, so I agree, the CSA was spouting rubbish about "the surname issue". The J seat (if available) should have been pre-allocated by Yield Management within 24 hours prior to the flight. One only finds out now at check-in whether one has been successful - the higher the status, the more liklihood of success (assuming there are upgradeable seats available). Assuming you are a Bronze member from your profile (QF Club membership is irelevant to the upgrade situation); then she would have been behind any Chairmans Lounge, Plats, Golds and Silvers who had also asked for upgrades. Within the Bronze members who had asked, you would have been ranked by the time you rang and requested it (first in, first in queue).