Hi FlyerJack,
There has always been a lot of debate on this subject, for many European airlines. The conventional logic is that it's all about revenue protection. If people think they can get an upgrade for cheap just before the flight, why would they buy an expensive fare?
You mention that you basically take the cheapest fare that earns you 100% mileage. Why would they be interested in selling cheap to you? Why not to the higher fare classes only. Just like upgrading with miles, only certainly fare classes are eligible.
Traveling from AMS, you do have the option of buying an upgrade with cash and miles, depending on your fare class (V is excluded). So I think that KLM is looking at this option, while working on protecting their business class revenue.
Yes, I'd like to have more upgrade options too, but on the other hand, AF/KL are making money, while the American airlines are on their way back to bankruptcy. Does revenue protection play a role into this? Yes. Is it the only factor? No.
In short, I understand your thoughts, and KLM does offer this option from AMS (and a few outstations) in terms of using cash and miles. Should it be really cheap? No, as it would hurt their revenue.
Cheers,
GenevaFlyer