Hi Phil,
Yes, you are correct. It should be 'Y' in the LOTW status box. I was thinking of the DXCC progress display, where that entity would show as confirmed using the 'C'. So the new QSOs should show a LOTW received status of 'Y', which is set automatically when you update your QSL status from LOTW. When you use DXK to assemble your next submission, the confirmed QSOs you you select will have their LOTW status set to 'S' - you don't have to do it manually.
73, Chuck KM3V