Huh, so the battle replay of me finally storming Kailasia's last province - the capitol - shows me as rather easily beating them down and they routed (which was pretty much the obvious outcome). But the battle report shows me as having lost half my force and Kailasia holding the fortress.
Go figure, eh?
(Had to go back and look - but I believe it was Jazzepi who had this occur also, in the Ragnarok game. Both times involved storming the fortress containing the defending nation's pretender and their last province I think. I didn't save the Ragnarok turns so am not sure if that was my last. I thought it was a bug then and I think it's a bug now, contrary to what Edi seems to think)