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RE: One for the books.
If a unit or stack assaults during it's activation, the defending units will defend themselves without being activated. Each side will suffer whatever results occur from that assault. The activated (attacking) units are done and marked as moved/fired. They stay in the hex. There should not be a case where they assault, are demoralized and retreat in a single activation, which is what your question seemed to imply.
The defending (non-activated) units in the hex will have the option of assaulting (now they are attackers and the original attackers are defending), recovering any disrupted/demoralized units, possibly digging in, retreating or just passing.
Their choice will be influenced by things such as how strong they are, the status of the enemy units present (disrupted/demoralized), the terrain they are in, can they be reinforced in a timely manner and the importance of the hex.
"It was a battle right fierce and terrible" - Froissart
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