Quite simply, DVC members don't get the upgrades because they already bought in.
That may be one reason, but I think there are some more important reasons for the no upgrade policy.
The first is simply an issue of fairness. If I spend 50 points for a Studio at the BoardWalk and you spend 50 points for the same Studio, we should both receive the same value for our points. In the cash world there are always numerous rates and discount programs to deal with, so the playing field is far from level. But in the DVC/timeshare/ownership world, it should be level. As an owners, I wouldn't be too pleased to find out that you got a One Bedroom for your 50 points just because you arrived sooner or a CM liked you better.
Another problem could be creating upgrade trends which are known and abused by members. Take the weekends for example. Most members would agree that the points are probably a little too high for weekend nights, and this almost serves as a disincentive to book it on points.
Assuming that is true, and assuming that upgrades from a Studio to a 1B were commonplace, members would begin intentionally booking smaller rooms expecting to get the upgrade. Sure they may not be successful all the time, but people will still do it if the success rate is high enough.
Suddenly you've got people spending 30 points for a Studio rather than 50 points for a One Bedroom. That leaves people with "extra" points to otherwise extend their vacations.
Similar trends would occur during other slow periods at DVC resorts (September, winter months at HHI, etc.) The foundation of DVC is for the resorts to be 100% booked year-round, less some accommodation for maintenance. If you start putting extra points in people's accounts (via the expectation of free upgrades), we would all suffer in the long run.