So Boeing thought that a possibly cheaper software solution would work, increasing shareholders returns, sadly the software solution was ever so slightly oversold. End result redesign the area around the boom to accommodate the hydraulic system, lots more work for the production planners etc.
Actually, very little redesign was needed. The boom envelope essentially did not change when the KC-10 boom became the KC-46 boom. The empty space where the old load relief device was located was filled with an updated load relief device and only minimal changes were required to the hydraulic tubing to accommodate the device.
And no, the KC-10 never had a digital FBW system.
Who signed off the design for the boom with just the fly by wire software, was it Boeing or the USAF?
Both. But that's exactly why there's a flight test program, to catch things like this before full production. This is fairly typical. But the change adds to the flight test and certification schedule, and with no margin in that schedule, it causes a slip. USAF will negotiate with Boeing to determine the impact of that slip and the financial penalties, if any.