They realized they would never clear so they paid for the upgrade....

Didn’t realize paid upgrades show on the upgrade list but makes sense

They can.

this is usually the answer. Once the UG list populates on flight status, paid upgrades show as cleared. Another possibility is a GS who seeing himself fifth applied plus points which lifted him to first. If PN was >0, that would have cleared instantly.

Sometimes. Sometimes not.
This was a Polaris flight according to OP. GS wouldn't have been listed without PP applied.

I had a similar situation last week.

Coming back on a TATL flight my connecting evening flight was delayed and I accepted the offer to rebook, spend the night, and connect the next morning. On the new flight, the UG list showed two PAX cleared and assigned seats. That looked odd since there were only two J seats still being sold. This was about 16 hours out from the flight. Since I had never seen an UG list like that I called GS to ask if they could possibly push an upgrade and in the conversation was told that only one PAX had been cleared, not two. By the morning, the two J seats were gone, J was check in full, and the list looked the same. I got on the plane in E+ and ten minutes before departure I got a text saying I had been upgraded - into one of the seats assigned to one of the cleared PAX on the list.

Now this at least half makes sense. From what has been said, it seems likely that one of the PAX had done bought a DOD upgrade and was still showing on the upgrade list. As for the other, it is possible (although somewhat unlikely in my experience) that someone would check-in, buy the upgrade, and miss the flight, so I am also wondering if an air marshal or deadheading pilot might show up on the UG list and have been cleared in advance. Is that a possibility as well?

FAM, no. NRPS, possible.