My faith in Virgin has been restored
My wife took a call yesterday from Virgin Customer Services who said that whilst the original call centre operator had followed the rules correctly, they could see from their records that it was obviously a genuine mistake and so agreed to reduce the charge to £13 extra fare + £50 change fee. It was originally £12 for the premium economy upgrade but I won't quibble over £1 and I think it is reasonable to charge a change fee of sorts to deter customers from making mistakes too easily (although in a purely electronic process I guess they more than covered their costs).
So our bill dropped from £209 to £63 for the upgrade which was enough for my wife to start looking forward to her trip again.
Well done Virgin for having some compassion and customer service