If you have a Continental designated ticket, and the flight is merely operated by Virgin (for example, Continental flight #4420 SFO - LHR) then what you were originally told is correct. If you have a pure Virgin ticket (for example, Virgin #20 SFO - LHR), then the second agent is correct.

Hopefully you have a CO designated ticket operated by Virgin. If that is the case, yes, you can upgrade for 40K round trip if space in that class is available. You qualify for your upgrade because you purchased a proper fare - K class (you need H or K to qualify for a 40K upgrade, or Y to qualify for a 20K upgrade).

It is true that the proper class of seats for this upgrade (Z class if I recall correctly, or maybe R class) is not released until 30 days prior to flight time. Continental has 12 UpperClass seats on each Virgin 747 - they are seats A and C, then H and K in rows 7, 8 and 9. You can get other seats (ones allocated to Virgin) day of departure at the airport, if available.

Your experience on Virgin will be wholly identical to Virgin passengers, except that Continental passengers are supposed to use the Air Canada arrivals lounge in LHR, which is fine, and I've reviewed it in another thread if you search. Other FT members have reported success at simply showing up at the Virgin UpperClass lounge and being admitted. In all of the US cities I've departed from (which is LAX and SFO) you can sue the Virgin lounges - which are superb, especially SFO.

Hope this helps.