I would think that when heading upwind you would want to stop pedaling and leave the flippers in the fully extended position. This would give you more "keel" with which to bite upwind. Seems like every time you retract the pedals back toward the hull you would slip further downwind - no?
It certainly seems so, but it doesn't appear to work out that way in practice. On the contrary, Mirage Drive boats seem to track better with the Drive in use than in the fins-down position.
One must remember that pedaling augments the forward speed component. Assuming the same absolute side slip per minute, doubling your forward distance traveled (per minute) reduces your side slip angle substantially, so your track is improved.
There are other factors as well. More forward speed means less tendency for the keel to stall. This can offset a less efficient keel angle. The rudder also has more authority with speed, and it plays a role in tracking as well.
Keep in mind that the Mirage Drive is not a particularly efficient "keel" to begin with, so the loss of "keel" isn't missed as much; the overall boat shape also makes a contribution to the keel effect.
Finally, as the boat heels, keel effect diminishes, but not so with an active Mirage Drive, as one of the fins is always passing through the vertical position.
These influences can be readily demonstrated with the Adventure, which can be sailed with a daggerboard, fins, both or neither -- easy to make comparisons.