Beware-the-3putt
Hacker
Many things can happen during a round which are not permitted and the penalties vary, In this instance we have clear information from the OP as to what happened. The other player took up his challenge and made a stroke with a ball other than his ball in play a stroke that had no place in his proper playing of the hole. That was a practice stroke in terms of Rule 5.5a, the penalty for which is two strokes. That's it, really.
You call it practice. I don't.
His ball was in a ditch and he teed up a new ball. That's not practice.
If we go by your reasoning, anyone that tees up again without declaring a provisional ball can just claim to be "practicing" and take a general play penalty if they balloon the reload oob and find the first ball. Hence instead of being 5 of the tee they are playing their 2nd shot and add the penalty once hole played.
The DQ was fully justified. I do not believe for a second that both the OP and his FC thought it was ok to do this.