You most definitely hold a confirmed seat assignment while waiting (and hoping) to clear for an upgrade.

I have never had this happen to me -- and I've never even heard of this happening.

In the future, you might want to get your boarding pass and then as to be added to the DM list for upgrade.

Also, if you have a seat assignment pulled, you might go to another agent (at another gate/at customer service/wherever) to get a boarding pass. Then, ask and make sure you're still on the DM list.