CozumelJen- From what I read somewhere in the archives it sounds like if there aren't enough seats to upgrade an entire party ticketed together that they won't automatically upgrade any 1 of them- you'd have to call & request. So this very well could be what happened on your flight, and could be the solution to my original question about how to get priority in my group.

Thanks for all the responses so far- still eager to hear about any other nuances to the system.