It is obvious.
If you had not the absolutely flex ticket (frankly highest possible rate at all), you will be NEVER on none of normal airlines allowed to skip first segment.
What they technically did: they cancelled your KEF-MUC-OTP and sold MUC OTP + most probably charged the difference of tariff DEN-MUC-KEF and DEN-MUC.
And they was 100% correct.
One-way MUC-OTP in J is 1319+tax.
Lesson: nobody should never try to do anything like this again