A few things here -
I have never heard of oil based poly being harmful to decals. Solvent based, yes, but oil based should be fine. I guess if the guy who made the decal says so I would believe him, it's just not typical.
Sand it down to bare wood and then some. Looks like you have a few things going on:
Possible contaminate in the wood - if there was an oil based finish previous, then some vestiges of the finish might remain. I'd be safe and sand it down bare and start over. Definitely, at the very least, get rid of all of the orange peel and bubbles
It looks like you much used more paint than needed; the advice above around quick mists is great. Don't get too heavy, use quick bursts. Also, orange peel and bubbling can happen when you spray fresh poly over uncured poly. This screws the underlying paint as well, so again, you'll need to sand to bare wood. What does the manufacturer say about recoats? With most paints you can recoat within a few minutes, but the environment (temp and humidity matters).
Some spray paint (Rust-Oleum looking at you) specify that you either recoat within an hour or you need to wait 48 hours. If you ignore that and try and recoat in five hours,or even wait a day, your paint will bubble and peel and you'll need to start over.
You don't have to sand between coatsif you do a light misting and you do several coats within the recommended time frame, but if you do, check what the manufacturer says. You should sand if you wait for the paint to dry (whatever time the manufacturer says). It may seem counter intuitive, but smoother grit (400-600) can actually show fine scratches while 200 grit the scratches will "melt" into the top coat. Water based poly is less forgiving than oil based.