You certainly didn't miss anything in the rules - I freely admit such a situation isn't completely covered.
Although the rules say units can countercharge even if they have already made a double move that turn (p.23), that rule was written in the context of a countercharge being a kind of emergency move to resolve a dangerous situation (that of being caught at a disadvantage by charging opponents). In your situation as you describe it, I would not allow charges/countercharges by BBBB or 2222. They have moved up as supports and that remains their role. See further down on p.23 - 'These units can only support and may not move a greater distance than the countercharging unit' (I think that answers your second question as well).
My rules were intended to avoid a charge leading to consequences that were too widespread, creating a 'battle within a battle' with units constantly moving forward and charging/countercharging as opportunities presented themselves, like ripples spreading in a pool. At some point one has to call a halt to out of sequence manoeuvres.
However, this a game convention rather some attempt at 'simulation'. As I always say, if you feel differently, try it your way. I can only give you the way I would play it and explain how the rules were meant to work.
Sounds like a house rule well worth trying. I also know some players for whom the 'fall back, rally, come on again' cycle is frustrating and they feel enemy units should just go away and be done with it! The amendment may also slow the game a bit by making units more resilient. Nevertheless, if you try it and it suits you, that's a good result.
I've found too many times when a unit with three hits takes two more. It just seems to me too short a gap between "We're okay, keep going," and, "You can take this job and shove it."
There is another way of looking at this - should rules force certain behaviours on players, or should familiarity with the game mean players do things of their own accord because they make sense? In this case, for example, considering units with 3 hits as in trouble rather than 'we're OK'.
If anyone collects old wargaming books, this classic is currently on eBay for a 'buy it now' price of £7.50 plus £3.40 p&p. Ridiculous - it is currently next to an offer of the same original edition for £67.00.
Please be advised that the COTSWOLD WARGAMING DAY is still on for Sunday 2nd September. Six games are now planned, with currently around 16 wargamers attending. Game periods are SYW (x2), Ancient, WW2, Napoleonic, and Colonial Sudan. Anyone who wants to pop along is welcome - join in with the games, or just wander and chat.
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.
In HoW there are only 2 infantry formations - line, and march column (p.10).
Column of divisions and column of attack I considered far too Napoleonic. For that reason, and also to keep the rules simple, I adopted the straightforward 2 types of formation. You will notice that square also doesn't feature. In particular, it was my reading of numerous battle accounts that lead to the conclusion that 'fighting' or 'assault' columns could safely be left out.
You can certainly try playing it that way if you wish. The way the rules function is that it is the interpenetration that actually causes the hits (which may in fact just represent disruption or disorder), and the casualties then trigger a retreat or rout reaction. Thus the interpenetrated unit follows the unit already falling back.