Ok for those of you wondering why Mommy Jin didn't recognise Bu Yeon, I think the answer lay in the brothel's owner's answer to her guards when he was slapped by So Yi (Ep 9).
She said that the Jins were famous for being arrogant and rude. We can see how she is obnoxious and believes wholeheartedly that Mu Deok was at fault for breaking the jade and running away and would not think it could be her daughter's doing. The same reason why she dismisses her daughter (Barbie Jin mage) when she says the door of the vault opened because of Mu Deok. To her, her daughter (Bu Yeon) cannot be a servant or a lowlife. Noticed how she is always portrayed as looking down on people? She never gives anyone below her rank, the time of day.
Another reason why she dismissed Mu Deok as Bu Yeon is that Mu Deok is not blind. To her, as we see in Ep 9, Bu Yeon will always be blind. Also, to her, Mu Deok is always kind, sweet, and gentle (see the flashback of the bird) but the Mu Deok we know, is a bit rough around the edges (well we can't blame her, she is Naksu in soul and Naksu has always been cold and calculative).
Now about who Jang Uk actually loves, at this current juncture, he sees Mu Deok as Naksu (he keeps calling her master). He has not seen actual Naksu's face up close (the only time he gets close was when Naksu's body is burnt) so there is no confirmation that he can remember what that looks like. Yes, he was perplexed to see Mu Deok saving him from the soul-shifting saga but he may have dismissed it as Mu Deok/Naksu manifesting from his wish to be saved. Kinda like a dream. So that makes perfect sense that at the end of Season 1, Mu Deok/Bu Yeon would sacrifice herself (knowing Jang Uk has been in love with Naksu and not her). At this point we know Mu Deok is in love with him already, saving him from the soul-shifting episode is a clear indication. Although one may argue this could be the ice stone acting up since we now know Jang Uk too has the ice stone in him.
As hinted by her conversation outside of the brothel with the Crown Prince (CP), her sacrifice may be in the form of her (again) protecting Jang Uk from being killed by CP. Now, why the duel? We know the crown is up for grabs between the 2 (no thanks to Jang Uk being born with the King's Star), at this point CP would have been influenced by his mom.
As for those afraid that this would be a Scarlet Heart Ryeo, I think the similarities are only for the fact that there are 3 good-looking "leads". We know Dangu is in love with Barbie Jin, up till this point, he is more of a friend who supports her "love" for Seo Yul. For Seo Yul, we know he is her first love but as pointed out at the verandah of the brothel (Ep 9) when both held hands, Mu Deok/Naksu did scowl and asked to herself if he really believed that she loves him. That scowl says she doesn't love him (well at least not anymore) another indication that Seo Yul is never going to get Mu Deok/Naksu is the scene where she waited outside of Songrim's gates. Her eyes were slightly disappointed when Seo Yul appeared and all she talks about is going in to see/save her master, Jang Uk. Her thoughts are preoccupied with Jang Uk and no one else. As for CP, we know he's crushing and the only reason Mu Deok/Naksu is close to him is to again, protect Jang Uk by minimising any possible fights they both have. She has yet to ask him or know that she appears as a vision to CP because he was thinking of her.
Now that we know Seo Yul missed his chance with his first love and that Lady Heo has no chance at all with Jang Uk (he made it clear again in Ep 9 that he is not attracted to her AT ALL), there is a possibility both would work together to make our main leads come together and be happy. Knowing how selfless and kind both are, this may be where it's heading for this 2. Would either of them die (this is TvN! A fan fav has to die - may not necessarily be Mu Deok/Naksu as Jung So Min (the actress) is currently reviewing her contract)? Not sure of Lady Heo but we know now that Seo Yul will be kept alive (he is slated to be in S2).