This is my first time working with large decals. Yesterday I attempted to apply two meatballs and both were ruined due to excessive air bubbles and creasing. I used the wet technique (soapy water) to apply the third and it came out absolutely perfect.

Squeegeed it dry, waited a few hours with it out in the sun and clearcoated over it in late afternoon.

I'm running out of warm days so I decided to block sand it today. All is good except for an ever so slight discoloration / blotching I'm seeing in the middle of the decal in places (this was after 1000). As a test, I sanded a tiny little part of it further and it got bigger.

I'm wondering if anyone has seen this before and might know what it is. My best guess is that I should have waited another day or two before block sanding. To deal with it, I'll probably clear coat it and try again.

Hard to see in the photo but here it is:

Can't see it in the photo but I'd suggest that a few hours in the sun was probably not enough to dry out the water under the decal from the wet application method. If it gets worse as you sand more then you may have sanded too far on the clear. Re-clearing won't fix this - you'll need to replace the decal.

looks like you burned through the clear,

Yep, what Dave said^^^^^^^ I put a light filter over your pic. and that is what I see as well....

I think I'm just touching the decal. The burn through is barely visible - only at a sharp angle or when wet.

I don't have enough warm days left to sand the clear off, remove the decal, apply another and reclear. I'm going to try and hit it with another coat of clear to see if that hides it. If not, maybe I'll retry next year.

So turns out that spraying a little clearcoat has completely eliminated the problem. Decal looks absolutely perfect.