The mountain duchy got what it deserved. This would be a decent opportunity for Livi to post some troops and officials there, partially to help them rebuild, thus earning goodwill, but also to keep the place better under control. It would do little good of they just rebuilt the place independently and then got straight back to funding the rebellion.
I don't particularly care about the duke anymore. Losing his eyes and legs is a good enough punishment. Executing him wouldn't be strange, but since his idiotic people love him, it would only create hatred toward the Sun Kingdom, unnecessarily. That being said, if he indeed was wouded like that. It wouldn't surprise me if the brother had merely come up with a plan to deceive Livi, in order to save Nephero.
It's quite interesting that we might have now learned why Nike is so stupidly forgiving: She has two personalities: One wants to destroy the world, one wants to forgive the world. Normally people would be between those two, but Nike is strictly divided in two. The forgiving one is usually in power, while the unforgiving one is dormant.