AH
Gong Gong led his soldiers into the ocean but General Ru So already anticipated Gong Gong would escape towards the ocean. He stationed General Yu Jiang and his water-trained soldiers to lay in wait. He was ready to cut down Gong Gong when Xiang Liu somehow energized his nearly dead soldiers to battle open a route for Gong Gong to escape. But General Ru So and Yu Jiang followed the entire way for days and nights until he caught up to Gong Gong on a remote ocean island. General Ru So had the island surrounded and used many ancient spells and weapons so that even if Gong Gong turned into a tiny fish he couldn’t escape. Yu Jiang insisted on landing on the island with his soldiers to attack and started a fierce battle with Gong Gong….”
Miao Pu’s voice got softer and softer. “One thousand Sheng Nong soldiers against 100,000 thousand Xuan Yuan soldiers, not a single person surrendered and every Sheng Nong soldier died. Yu Jiang is a top fighter among the Gods but he could not defeated the heavily injured Gong Gong. Later General Ru So ordered every single soldier to shoot their arrow at Gong Gong and with over ten thousand arrows shot at him, Gong Gong finally died. It was after his death that his true form appeared, it was the Nine Lives demon….General Ru So realized then that he was tricked.”
... “General Ru So, once he discovered he was tricked, did not fall into a rage. Instead he said happily “With Xiang Liu’s death, the hardest part of the war is over.”
On the island, there is only one Gong Gong. So it wasn't about having two Gong Gongs to confuse the enemy. Elsewhere in the novel (XL's epilogue I think), it's written that the veteran soldiers in the resistance army take comfort in seeing XL's all-white attire because, in battle, it always draws the enemy's attention and the fiercest attacks are always focused on XL rather than the soldiers around him. So I don't think the disguise was about drawing enemy fire.
It's possible Gong Gong was already dead and XL disguised himself so that the soldiers would fight valiantly to the end believing that Gong Gong was also still alive and fighting... but it would be very strange if Gong Gong died in battle and no one noticed. If he died between battles (e.g., from wounds he got in a previous battle) and XL was disguised as Gong Gong during the entire final battle, who was the XL that battled a route for their escape? And why was Gong Gong's death not mentioned or implied in XL's epilogue (which is set right before the final battle, when Ru So has already started burning the mountain) where XL is just focused on thinking about XY?
I doubt that Gong Gong died during the "days and nights" when the army was running away because I don't think XL would leave Gong Gong's body behind while on the run. Plus, disguising himself as Gong Gong wouldn't be about protecting Gong Gong in that case, it would be about motivating the troops - but how could they not be aware that Gong Gong died when they were all on the run together?
My best guess is that the real XL battles a route for the real Gong Gong and the remaining soldiers to escape to the ocean and they are all on the run for "days and nights", and during that time XL helps the real Gong Gong (and maybe a few other soldiers, beyond the 1,000 that make a final stand with him) escape in a different direction before disguising himself as Gong Gong and making the final stand on the island.
Ru So also seems to be aware that the war isn't completely over yet, but "the hardest part" is.
So very brutal for XL fans. And worse, for XL and Ru Shou fans! sniff
From that, I'd agree with your last guess. That Gong Gong was fatally wounded when he got caught at the water's edge and XL opened that escape route. A few might have escaped with Gong Gong's body to the mountain cemetery, while XL disguised as Gong Gong and his band of 1000 led the enemy to the island and died to man. XL would have donned the disguise to fool the enemy and keep their attention on him, instead of the escaping Gong Gong. I really don't think alot escaped, as the pursuers would have noticed.
In the show, I seriously doubt they'll disguise XL as Gong Gong. No one wants to see an old guy we've rarely / never seen before, fighting hated / beloved Ru Shou in a glorious last stand. Plus, we've seen pics of XL at the battle, and he's himself.