Does the next size up rule really apply to services?
It applies to conductors.
Though services are the one area where there are rules a little different than for feeders or branch circuits.
For a service conductor supplying a single overcurrent device protection rules require protecting the conductor at it's ampacity, next size up rule can be applied (800 amp and below).
The place where rules may not seem right is with a service conductor supplying multiple overcurrent devices (where permitted of course) those only need to have ampacity to carry the calculated load but the sum of overcurrent protection devices can exceed the ampacity of the conductor.