One thing to note is that because you have the water park option, you will have to upgrade to Premium AP's. If you were planning only to upgrade to regular APs, you need to change the tickets on your package reservation to drop off the water park option.
In addition, it isn't clear to me how much credit you'll get toward your APs with the 4+3 tickets. The line I've always been given is that you get as credit exactly what you paid for the tickets. If that holds, you may only get credit for the price of the 4 day ticket, not the 7 day ticket. But, of course, that can change based on however Disney wants to run the promotion.
You bring up two good points:
1) You don't have the Water Parks & More upgrade info quite right (at least based on the info I've read and heard about in multiple places)
If you have the Water Parks & More option and you *use* any of the options before you upgrade, you can only upgrade to a Premium Annual Pass. But if you haven't used any of the WP&M admissions, you can upgrade to a regular AP. They'll give you a credit toward the AP in the amount you paid for the ticket.
Which leads to....
2) I'm not sure quite how Disney handles things like the "free" days on your tickets in the B4G3 promo, but it'd be worth it to at least use your ticket once for a main theme park admission *before* upgrading them.
When you do this with a discounted ticket broker's ticket, the ticketing system will give you a credit for the current gate-price of the ticket, not what you (or the ticket broker) actually paid for the ticket. It's just a quirk of the system that I've been told by a number of cast members in ticketing about, and they actively encourage it.
It works the same if there are ticket price increases between the time you book your package and your trip. For our trip in September, ticket prices went up before we took the trip. I made sure to use my ticket first, and when I upgraded to an Annual Pass I got an extra $10 credit or so that I didn't actually pay.
Now, after all that's said, I don't know if this will work for tickets that Disney has given you something for free, like the 3 free days on B4G3. But it's at least worth a shot. Worst-case is that you don't get the extra money and you pay about $10 more.
-Rob