Say a ship moves at speed 3 and it rams /overlaps another ship. It would temporarily reduce its speed to 2, but what happens if this now leads to an illegal move on the movement ruler, so for example, the ship’s base is now overlapping a part of the ruler?

This is the one case where overlapping the maneuver tool doesn't matter and the move will be completet even if doing so

Wow, we’ve been playing this wrong for years.... we’d been playing that you just re-did your manoeuvre at the new reduced speed.

Can you refer me to the rules entry for this? Thanks

It's in the rrg on page 8 in the section "Overlapping" (the third point in the List):

"If a ship must execute a maneuver at a reduced speed due to overlapping another ship, it is allowed to overlap the maneuver tool in its final position."