This is how I look at this situation:
First, did Disney overbook on purpose, ala bait and switch, or was it an error (human or computer, it doesn't matter)?
I find it very unlikely it was intentional: first, no one has posted about anything like this happening before. Also, POd people spend less money while there. Third: almost all people, at time of booking, if POP was not available, would book at an all star. I think it's very safe to say that the money they may lose from unhappy customers is far less than the money from people who would not have booked at all if POP wasn' available.
Also, quite a few people are being bumped to a mod. Not a bait and switch move.
So, overall: this much of an overbooking was due to error (computer or human, again, doesn't matter).
When did they realize they had a problem? Chances are they didn't realize it until they started assigning rooms, which is about 10 days in advance. Then, they try and figure out what to do, which takes a few days. So, at about 5 days out, they come up with a plan, and start calling people. This is what happened.
They really do want customers to be happy (for repeat business, referrals, and happy customers spend more). So, they move people do different resorts, with upgrades where possible.
Some people got CR. Others got preferred at all stars. This is
free dining, and 40% off. Resorts are packed. There isn't enough room for all 400 people in mods and deluxes.
What is a bumped person to do? They can't stay in a resort with physically no space. So, accept what is offered. And, if you feel it isn't enough: be polite, but you CAN ask for more, just be resonable.
For instance: DD really had her heart set on POP. Is there anyhing Disney can do to make it up to her? Suggest a gift card maybe?
ALWAYS REMEMBER: the CM you are speaking with had NOTHING to do with this problem, and the nicer you are to the CM, the more they will probably be willing to help you.