Mike, I don`t know, if there are any differences between being a KL or NW Elite.
I guess, both airlines offer a certain number of award seats and if they are gone, they are gone, regardless if a NW Elite or Braathens Elite or CO Elite would like to have them.
KLM certainly overbooks their award inventory for Royal Wings and that is one huge advantages of the FD programm, which not many FD appreciate enough.I checked it excessively and believe me, you will be seated right next to the new Princess, if there is a seat available on KLM.
But in addition to that, the situation ex LGW seems to be more difficult, with only 12 weekly departures....
Coming back to the question, who is calling the shots, I agree, that on NW metal, it is definately NW, but only in terms of releasing a certain number of seats on their own metal, but not, who will get them.