Hi Stomm
First of all, if enough hits were caused to destroy a stand, the Empire player would be well within their rights to remove the one in front that would otherwise be destroyed anyway.
I don't think so. Stands should be removed from the back to keep the two stands enemies fighting in touch all the time. The combat is engaged there.
Secondly, that stand has no support, as the stands behind are not 'directly' behind it.
Yes, we didn't count support.
So, those are the questions you didn't ask, now to the one that you did. No the whole unit is not wiped out. Only stands that are forced to retreat into impassable terrain, enemy stands or engaged friendly stands are destroyed. And that is of course assuming that you are treating rather over-scaled houses as impassable terrain, which always seems rather odd to me as a whole village would likely fall under the footprint of one or maybe two Warmaster units...
So, empire stand fighting is destroyed pushed against the house. The scarabs move forward to keep being in touch of the combat (they pursue), and finish touching the enemy and the house. If empire unit is forced to retreat more cms, the scarabs are stopped against the house??
Regarding the footprint and the scale oddity, if you play with little small houses then the figures are oversized

Sometimes we play two little houses being a village, sometimes we represent all the village or part.
In any case, all buildings are impassable in a combat, unless you treat a village as an area generic without specific building models (like is done with woods).