You may keep frequent traveler benefits earned while on official travel for personal use, yes. (See, Public Law 107-107)
You can upgrade seating at your own personal expense – including by redeeming miles, for example.
However, official policy is that you may not select a travel service provider based on whether it provides frequent traveler benefits. Also keep in mind that a denied boarding benefit (for example, cash or a free ticket coupon) must be turned over to the government.