IsDon,
You are mostly correct, however, with respect, if the LOP's in force when they close in a couple of months have insufficient 737 F/O preferences to meet the demand of the training year, then I seriously doubt there is anything in the "awards" (sic) to prevent them offering any applicant a 737 gig.
Even if there were, there's nothing to stop them offering a slot to an applicant 30 seconds after they walk in the door on the first day of their S/O course, which would amount to the same thing except that they couldn't be forced to accept it.
The Company policy of x hours on Company aircraft prior to promotion to F/O is the only impediment I can think of, but I'm pretty sure they could get around that easily.
Given the seniority of recent promotions to the 737, and the proposed number of movements, I would think this is a serious possibility. No-one will know, of course, until all current S/O's (and those approaching age 65) review their LOP's over the next couple of months.
As for "bypassing applicants" (I think that comment was made somewhat in jest), they will employ whatever applicants they choose. You get to do that as an employer (within the bounds of the Discrimination Act). Cadets have no legal privilege to a position over anyone else, but the Company will presumably employ them first unless there is a reason to do otherwise. I would think many cadets would be more than qualified to jump straight to the 737 given the experience they have had over the past several years.