Just wanted to expand on this a little to make sure it is clear.
An In-Channel upgrade requires that both the pre-upgrade channel and the upgrade channel be published channels. A free private channel is published as soon as you upload it to the channel store. However a private channel with a fee, or a public channel (with or without a fee), will not be published when they are uploaded, but require Roku approval first (they remain in the "publishing" state until that happens). Therefore to test In-Channel upgrade, you should make both channels free private channels. After your testing is complete, then you can change to a public or paid private channel.
--Mark