We only think he was a Lieutenant because he wore two pips - such rank, or indeed a commission, was never really mentioned in dialogue. ("Where Silence Has Lease" features an ambiguous bit where Riker says "Lieutenant" once, but the writer wouldn't have known in advance that Colm Meaney would be in that scene -the script would have called for a random transporter operator - and OTOH Riker could be speaking to Lieutenant Worf in that scene, rather than to the transporter operator).
But perhaps the color of the pips matters? We know that one dark pip makes O'Brien lower in status than the lowest Ensign, in late TNG and in early DS9. We also believed that Colm Meaney's character wore a single bright pip in "Encounter at Farpoint" but the recreation of those scenes in "All Good Things.." proved us wrong - the pip was always dark "in reality"...
So perhaps those two pips were dark, too, "in reality"?
Timo Saloniemi