Nobody likes to lose a benefit they once had so I think its understandable why Elites would be upset. I do agree, though, that you should buy TS where you want to go and based on the vacation offered not on any side benefits that can be changed at any time. Assume that at some point the property you buy at will be the only place you can go to and think whether that will meet your vacation needs. If not, don't buy there. Hotel points, trading benefits, etc, can all be gone tomorrow.
I can also see Starwood's side, up to a point. I have witnessed many irate customers in Maui, mostly owners at WMH or VV, that come to Maui and are disappointed when they end up in one of the not-so-special rooms. Some ended up on the construction side, others perhaps not as close to the ocean as they expected. When the resort is close to 100% full during 4th of July week, mostly with local owners, some of these guests start yelling and berating the front desk staff because they didn't get what they expected and want the staff to do something despite the fact that all rooms are in use and the best rooms were understandably given to home resort owners. This, however, is the fault of a few bad customers for having unreasonable expectations and then stepping all over the front desk staff. The sales staff is also partially to blame. However, I think the upgrade benefit is great and should be continued as it is - based on availability. When availability is 10%, customers should not expect to get an automatic upgrade. Starwood also needs to educate its sales force to not overpromise - again, not an Elite member benefit problem, but one of other parts of the system. The SPG program offers suite upgrades to SPG Platinum members, but most don't get as irate when there is none available. I haven't heard of SPG thinking of taking the benefit way just because of a few unreasonable customers. The same should go for SVN.
Perhaps member services is just working with what is within their reach to change. They don't control the sales organization. However, this is not in the best interest of owners and SVN. No sense treating a symptom when the disease requires a different medicine. I hope SVO can realize this and change its plan of action regarding this particular benefit. I was even upgraded once when I was no-star from an ocean view to an ocean front studio and I certainly enjoyed it. Blanket removal of upgrade possibilities takes flexibility out of the system.
Perhaps assigning upgrades 90 days out is too much. A few days before check-in time the front desk staff could go through its list, sort it by home resort ownership, then elite level, then call-in time and assign upgrades based on available rooms. This would allow all that wanted to make reservations to get a room and use what is left over to give a little something to their most loyal customers. This is better than letting good rooms go unused.