That is my understanding too.
I also wonder on that basis they asserted that they were not liable for overnight stay. There is an argument that can conceivably be made that, if it is your outward flight (in the sense that you are flying from your home area), Art 9 of the Reg does not impose an obligation on the airline to provide accommodation. That, in itself, is open to debate but this is the only (thin) basis for asserting that they were not liable.

Re-reading the Reg, even if the delay is from your home country, there would still be a case for claiming accommodation costs if you reasonably had to stay there overnight (as opposed to going home) to catch the flight the next day. The English version of the Reg is not very luminous but the French one is a little clearer: the first indent of Art 9(1)(b) seems to be designed to cover exactly that (the French version speaks of a "séjour d'attente" (i.e. stay necessitated by the need to wait for departure) of one or more night becoming necessary whereas the second indent contemplates your having to stay longer than planned at destination.