Doesn't work. Your ship needs, at least, a single colonymodule. After that, you could fit troop modules onto a Colony Ship in order to better increase the starting population. Or, you could use that ship for invasions, as well, the people from the colony pod are used for battle as well.

Fascinating. You just encountered a bug, ie. the standard colony mod should not be able to support more than 250b ppl.

About the upgrade costs: The sum you did pay is a kinda stardard fee you pay for downgrading a ship.

Usually when you upgrade a ship, let's say original design costs 100 MP, and your new design is 200 MP, then you simply pay the missing 100 MP in credits, which would be around ~800. But when the new costs is less than the original design the game charges generally only around 40 MP.

If you know this you could artificially raise the costs of your design to be just 5 MP more than the old design. The upgrade costs then are most minimal.

I also always use population ferries to help new planets being able to establish better population growth. At around 1.250b ppl this growth rate becomes reasonable & stable. Ferries are somewhat fast troopships that hop from planet to planet. I don't colonize with these, I find it better to use only the most cheapest design as colonizers = tiny hull + colony mod. You loose less MP and can crank out more of them in the same time.