Looks like the commit r4188-e96a9a9af8 "sysupgrade: run only one instance at a time." has introduced a bug to the sysupgrade process that prevents the actual sysupgrade. It may not affect all target platforms, but at least ipq806x / R7800, a NAND device, seems to suffer from the bug.
I have written my findings directly to the commit:
And have filed a bug:
So far I have only managed to make sysupgrade to work only if I revert the changes done by that commit (manually edit /sbin/sysupgrade file in live router).