Xenophon's army was certainly the only one in history to do this, not just a famous example.
It's incredibly simple to prevent: Have units in neighbouring provinces. I'm not sure why you feel an army should prefer mass-suicide to retreating into an unguarded enemy province, but it's not something we're going to "fix".
I´d say, it´s incredibly easy to exploit. The unit should be allowed to withdraw once, be forced to fight the enemy presence in the target province and auto-disbanded if it loses this fight (which is likely, even against an numerically inferior enemy, since the army is likely to be retreating due to bad ORG). Give them a fighting chance and force the enemy to have the surrounding stacks a) at appropriate size and b) stick around for a bit longer.
Ownership of province could then be used to reset that ´withdraw once´ boolean: If the unit withdraws into enemy territory, it will be auto-disbanded, once it will be forced to withdraw again, unless it has again been in a friendly controlled province, reseting the ´has withdrawn´-value, in the meantime. So, if you do retreat your army into enemy territory, you better get it out of there, again ASAP. If ´withdrawing==true´, zero ORG or retreating causes immediate destruction, not another retreat, and if you retreat, setting it to ´true´, it wont be set back to ´false´ before the unit reaches a friendly controlled province (or takes control of the province it is in). Mark the ´retreating´ status on the unit like ´attack delay´ in HoI.
A possible retreat´s destination should be markable even before the ´no-retreat´ (as it is in the game, not the one i am talking about above) timer wears out, BTW. Then you can have retreats into neutral territory (with military access, but not at war with your enemy) cause internation (no move or attrition or supply cost for that army for the rest of the war, or until the neutral enters it).
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