Yes devil is in the details and all types of rules exist: some fares require payment (full) but can be cancelled with full refund, some fares require payment of first night, some fares require no pre payment but do require credit card guarantee and hold of first night, some fares require no prepayment and not even a cc guarantee (even though the website typically pushes you to enter guarantee info anyway). There may be other variations but I’m not sure (eg not sure if some fares can be booked without guarantee but require such guarantee to be provided x days before stay dates, I don’t remember seeing any though I’m not sure it wouldn’t be possible in principle).

it may well be the website entered the wrong conditions but even then I think it’s dodgy of the hotel to penalise you by cancelling if booking was confirmed and without contacting you directly to discuss their issue. Whether it’s one you want to fight on principle or not is a separate and harder question…