This is not true. The points go back into your account. You can't see them online or book with them online, but MS will be able to see them and use them if they are valid for the reservation you want to switch to.
That said, I wouldn't take the chance of cancelling a reservation online and then calling MS hoping that what I wanted would still be available. I would have MS do both the cancel and the re-book.
One time points expire at the end of the use year into which the reservation that first used them fell. They cannot be banked or borrowed.
If the MS CM tells you something different, politely ask for a Supervisor - as you see from what lilpooh108 copied from the website, you originally received incorrect information. Unfortunately, that sometimes happens.
You are correct. I misinterpreted or was given bad info.