In Warmaster though a full route is represented by hits taken- not just models killed. That's why hits are discounted at the end of combat, as units rally. Your example of Custer's forces is more akin to a unit being fully wiped out, in game terms.
I think it's fine if units can lose confusion while in combat. You've had two turns of hitting them while they're at a severe disadvantage- if they're still alive they must be tough, and have probably managed to regroup or at least formed some kind of effective fighting block.