I am as vocal a critic of CO as you will find here, but I'm afraid I find your line of reasoning somewhat baffling.

First, the rules are the rules and, as you state, you were aware of them. Any set of rules, by definition, will have some aspects that will appear somewhat arbitrary. That's the nature of rules.

Second: Is it unreasonable for CO to insist on a certain fare basis to more or less guarantee an upgrade, in this case full Y? The fare difference may not be substantial, but it's still more money for CO.

After all, even at full Y it's still an upgrade or a perk. Remember the good ole' days when the only way to get into FC was to actually pay for it?