In a recent game my opponent (Austrian) was using his Hungarian light infantry to screen his main battle line (stupid copse of woods right in the middle of the field). I was playing French and my brigade of "Wild Geese" managed 4 hits and forced the rascals to flee. Now his main battle line was close enough behind that pass through damage was to be applied. However he made the case that there were gaps on either side of the line infantry battalion and the unformed lights could "flow" around the line. Things were going well for the French that day so I granted the appeal and did not require damage to the line infantry.
Did I set a bad precedent or was that a reasonable interpretation of the rules?
I can see where your opponent is coming from. However, my point would be that the light infantry have been forced to retreat due to enemy action - they are retreating in bad morale. Therefore, they have the potential to spread alarm and despondency amongst friendly units they pass through (or those they pass close to, under the rule amendments to be found in the downloads section). If they had been falling back voluntarily, of course, there would have been no need for any potential hits to be applied. This is the fundamental difference.
Check the note on p.26 (grey box, bottom left) for my reminder of how hits should be regarded.
Note also from p.29, "retreating or routing units may only change formation to avoid enemy units or impassable terrain". This is an attempt to close the kind of loophole your opponent was exploiting (though I understand his point about 'flowing around'). Having panicky light infantry 'flowing around' might well cause consternation in a unit and lower its morale, which is what the compulsory hits attempt to represent.
So yes, a bad precedent in my opinion. You're a very naughty boy.