For Aruba Instant APs, the ability to mark the device as down depends on the group basic -> aruba instant box -> https timeout.

By default, the HTTPS timeout is 5 minutes.
Then in the trigger definition (system -> triggers), you'll want to make sure you have 2 conditions in your down trigger event:
1) device type = AP
2) minutes down >= 5

This combination has worked for us in lab tests, and expect it to work for you as well. I do advise having the send alert for Thin APs when controller is down set to yes, as we have tested scenarios where only the VC AP goes down (at which point another AP should become the VC).
In regard to your question about upstream device down, this function only works if AirWave knows about the upstream devices. You should be getting the regular alerts regardless of the upstream device toggle when upstream device is unknown.