Why do Apple Store insist on decrypting FileVault to run diagnostics?
In my experience they don't insist anything except you ensure you have a backup of the data should service erase it.

If they don't have your password, they can boot to another OS to test. If the issue is your software, they won't be able to advise - but even knowing you have OK hardware will help you then finish the troubleshooting.

Perhaps your frustration with the repair is coloring your recollection? It would take them 15 minutes to wipe your drive and test things and if you aren't in a position to fulfill that portion of the repair agreement that's causing the delay and both sides regret entering into the agreement that wasn't "by the book". Keep in mind if they have to take hours to work around your not having a backup - other customers are delayed in their repair and maybe that along with the high volume of repairs that happen at the end of the school year.

Perhaps the time quote was incorporating the backlog and not that your machine itself was taking that long on the test bench.