The rules would have benefitted from a second edition had it been forthcoming. Alas, it is not to be.
However, this is really the first time (and I've played a lot with many different players) I recall this particular rule being questioned. All the players and clubs I know play it as I described.
Yes, being disordered as opposed to steadfast is a huge difference. It makes an opponent seriously consider using Might to preserve the formation if his die roll is close to being steadfast.
I almost always call a heroic fight with cavalry formations, rather than risk failure on ESC roll, for this very reason. Cavalry chew up formations this way. Some players think cavalry formations are too weak in WOTR, but it is often because they don't go all-in with heroic fights and get the two fights with the opposing formation disordered on the second fight. A proper cavalry charge should route a formation if possible rather than getting tied up in a slugfest.