Customer approached the counter, looked down read the notice effectively saying "no ice due to ice machine broken", before looking up to order an Iced Latte with a faint grin. I pointed to the sign and said "no ice".

(If the customer is genuine I don't point, I just communicate. If it is someone messing about, I do less communication and more pointing to the sign (such as the one they literally just read, having observed their pupils move side to side) as it stops their sense of achievement with the view they grow up and don't try it in future)

No disappointment, shock or surprise, "I'll have a hot latte then" he followed up saying. He clearly wanted the latte all along but having seen the sign thought it was funny to ask for an Iced Latte. Erm, why?

If he had charm and charisma, it could have ended up as funny banter, but instead just a minor annoyance to add to the rest of the people doing similar that day.

Having a preference between one of the hottest drinks we do and one of the coldest, rarely results in the polar opposite being chosen as a second-preference outside significant temperature variations across different days. When its heatwave hot the iced drinks are well in demand as people try to cool down (some people will pick hot drinks on hot days as a preference - staying hydrated without fluctuating core temperature so much but their go-to is never an iced drink).

In this case despite similar names, the drinks are very different especially with the steamed milk - not just texture but a different flavour profile altogether.