I made a separate post about my friend's upgrade issue. You can see it here:

http://forums.att.com/t5/Phone-Upgrade/2-Year-Contract-up-but-NOT-allowing-iPhone-upgrade-for-anothe...

It's true that AT&T will push back people's upgrade for many issues. My friend made some late payments. His bill has been current for some time now. He bought his iPhone 3G back in 2008!!! He has NOT upgraded all these years but now wants the 4GS. AT&T tells him he has to wait until FEBRUARY 2012 to upgrade an old phone Apple doesn't even support anymore. He had no idea that his upgrade would be affected by late payments. ESPECIALLY considering his contract with them has been up for a year.

AT&T couldn't explain it. They were "kind" enough to say they could upgrade him to any phone other than an iPhone. REALLY?? They obviously want people to switch to other carriers.