It wasn't an attempt to be polite. They didn't use the long form of their name (which would be irritating but I can see that being an attempt to be polite), they used a rather infantilising diminutive. The effect was condescending and "Sal" was well within their rights to object.

In the general case, telling someone that actually you are the person who has the last word on what they are called is bullying.

Sure, if someone says "call me this" and you don't, I agree, that's annoying. But it should be a polite request, not the start of a fight.

And what is the long form then? The only female name I can think of that shortens to Sal is Sally. This whole story seems suspect.

Sally is traditionally short for Sarah, though if someone with a longer name like Salvadora/Salvatoria were living in an anglophone society, I could also see them going by Sally.

"let's call her Sal" is an idiom for "her name isn't Sal, but let's use that as an example".

Because they had already stated what they wished to be called. Once someone does that, conversation on the topic should be done; there is nothing more to be said. Choosing to ignore that is a massive sign of disrespect to the person, and should not be tolerated.