It does happen. I don't think you'll necessarily have a better chance of being upgraded one way or the other. If they over book a certian category, they could upgrade people with assigned rooms and fill the room with someone who booked a category guarantee, or upgrade the guarantee passenger. It's really random, and I think they like it that way so no one can try to beat the system.
The best advice is to book the category you'll be comfortable in. If you book counting on an upgrade it's very likely you'll be disappointed, and I don't believe you have a better chance one way or the other.