"purchase a Jetstar flight and upgrade it to business class "
how is this even possible with QFF points? Either the reward is issued as a JQ "Business" class award, or it's not. AFAIK you can't upgrade JQ flights with points, nor can you upgrade reward flights with points not operated by QF.
Maybe it's just the way this has been wording.
A minir point to this.. but it seems that if someone has gained access to your account and used the points without your consent or knowledge this is an issue for QFF fraud etc to look into. I mean they would have been redeemed in a name, and since Business class is mentioned it's international(even a domestic tag would require photo ID through the terminal to board) then it's unlikely a fake name, and it could be chased down.
I still don't see how QF have "ripped you off" though.. seems like someone else has, but not QF.
However it's poor service if they're not working to resolve the issue - or at very least cancel the reward (or has the flight been taken?)
a number of unanswered questions here.