I was once told by someone that saying migdol instead of magdil in bentching on Shabbos and yom tov is an error. That a siddur had the source in pesukim in short form on the side and people mistook it for say on Shabbos. Has anyone heard of this or have a source for it?
This idea, that it's based on a mistaken expansion of 'בשב (meaning 'בשמואל ב) to mean בשבת, comes from R. Baruch Epstein's Mekor Baruch.
However, it is demonstrably untrue. The custom of alternating between מגדיל on weekdays and מגדיל on Shabbos is mentioned by Avudraham, who lived in the 14th century. (He doesn't mention the custom of doing so on Yom Tov or Rosh Chodesh - thanks DoubleAA.) The division of Shmuel into two books (along with the chapter numeration of Tanach, both of non-Jewish origin) didn't make it into Jewish life until the printing of Bomberg's Mikraos Gedolos in 1524-25.
I always learned that yes people mistook it saying Shmuel Bet (22:51) instead of Tehillim (18:51) (the pasuk appears twice, with this small change) and started saying it on Shabbat.
However I found this source which says that the study of Ketuvim was forbidden on Shabbat and therefore the Shmuel verse had to be recited instead of the Tehillim verse, and even though this ban has been lifted the tradition continues.
“The Rabbis forbade reading from Ketuvim1 on Shabbat in earlier times because of neglect of the study hall.” (Gemara Shabbat 115a) The complete source (it is a word document so I don't know that the link will work.
I found a link here that quotes the following:
This passage includes the words magdil y'shuot malko. On Sabbaths, festivals, and Rosh Hodesh, the word magdil is changed to migdol. Various explanations for this have been given (O.H. 189 in M.A. 1). The verse in question comes from Psalm 18:51, where magdil is used. However, in 2 Samuel 22:51, where Psalm 18 is repeated, the word migdol is read, It has been suggested that the original text of the Grace had magdil, but that someone added the parenthetical phrase v-b-s-"b m-g-d-v-l indicating that the reading is migdol in 2 Samuel. This was later misread as an abbreviation for u'vshabat, and it was assumed that we are to say migdol on the Sabbath. Whatever the reason, this has become the established custom, and as usual in such cases, it is easier to reinterpret than to abolish.
For an extensive study of the Magdil-Migdol issue, see Rabbi Raymond Apple's article that appeared in the Jewish Bible Quarterly. It is reproduced at http://www.oztorah.com/2013/03/magdil-migdol-liturgical-responses-to-textual-variants/