It is an odd situation. The Ottomans didn't even chiefly use the term Sultan! In Ottoman and modern Turkish, Padishah is more appropriate. This means "Master of Shahs (kings)" in Persian and is a title that is superior to Sultan.

The first Ottoman rulers used the Turkic title "Bey," or lord. Murad I (1362-1389) took the title of Sultan, which was a term created in the later Abbasid period to denote a ruler who held secular power in the Caliphate. The Abbasid Caliph was nominally in charge of spiritual affairs, and various Turkic dynasties were in charge of actually ruling as Sultans. The Ottomans were elevating themselves from the various Turkic "beyliks" (principalities) that were contending for power in Anatolia by claiming the title of Sultan. They were, however, not content to stop there.

Throughout the 14th and 15th centuries the Ottomans began accumulating title that were superior to Sultan. Mehmed II the Conqueror added two important ones, Kayser-i Rum and Padishah. The former is Ottoman for Caesar of the Romans and the latter Persian for Master of Shahs. These titles are superior to Sultan, and similar to how an emperor is superior to a king. While Kayser-i Rum fell out of use, the Ottomans were consistent in using Padishah from then on. They also added titles such as Caliph, Sultan of Sultans, and Khan of Khans. The Ottomans were a lot of things, but humble in titles was not one of them!

Now, why would Christian European languages stick with Sultan? They certainly didn't commonly refer to the entity as the "Ottoman Sultanate." Terms like "Ottoman Empire," "Turkish Empire," or simply "Turkey" were much more common. At the same time, Christian European languages didn't seem to understand the internal dynamics of the Ottoman state, or Islam for that matter, very well. All sorts of colorful terms for the Ottoman ruler were in use, such as the "Grand Turk" or the "Grand Seigneur," as well as things like "Turkish Emperor." These are all based on other European conceptions of what the Ottoman Empire was like, instead of direct translations of current Ottoman words like "padishah" or "Hünkar" (which means "sovereign").

So I would suspect that the early appellation of "Ottoman Sultan" stuck, even though the Ottoman state itself had moved beyond that term by the middle of the 15th century. Even if fellow European monarchs were aware of the difference, power politics could come into play. Süleyman the Magnificent sent letters to Charles V intentionally listing Charles's title as king as a way to assert dominance. Referring to a ruler who claimed to be the Master of Kings as a mere Sultan would have a similar effect.