ORIGINAL: Bill Runacre
Essentially the concept behind Free Units is not to encourage the evacuation of a country, but to reflect that some/all of an army has the fighting spirit to continue the war from exile. Or to put it another way, soldiers will first and foremost want to defend their own soil, not evacuate it and let it be conquered if there is an option, and this should be encouraged as much as possible.
Bill - I completely agree with your point quoted above. My point though is that the current rules create an incentive for players to not let soldiers of minors defend their own soil, and to move them instead into exile, in order to avoid having them disappear when their government surrenders. If a minor's last capital is about to be captured, this is a very rational strategy as their chance of surviving one random check as Free Units will be much higher than their chances of surviving a surrender check every turn inside their own country when its last capital has fallen.
On your query about supply, I don't think this creates any complications. When a country surrenders, all of its resource hexes shift control to the conquering side unless they are physically occupied by the opposing player. This need not change if the units doing the occupying are Free Units fighting on after their government has surrendered, or units belonging to an enemy Major.
Imagine the following situation in Romania (to pick a larger minor than Montenegro). The Central Powers have captured Bucharest a few turns ago and have just captured Romania's Alternate Capital in Jassy. The Entente have a Russian corps occupying Galati and there is a remaining Romanian detachment entrenched in the port town of Constanta. In the existing rules, the Russian corps would remain in Galati and in control of that resource, while the Romanian detachment would disappear as soon as the Romanian government surrendered. If Jassy looked likely to fall, in the previous turn the Entente player would have been wise to evacuate the Romanian detachment to Sevastopol in the hope that it survived as a Free Unit.
What I am arguing for is to enable that Romanian detachment to do a Free Unit check after Romania surrenders, and if it survives, it continues to occupy Constanta and gets its supply from that resource. This seems to me a reasonable outcome. If it obliges the Central Powers to divert some forces to conquer Constanta even after Romania has surrendered, so be it. It seems more reasonable than allowing the Central Powers to ignore a unit behind its advancing front line because it knows once Romania's last capital has fallen, that unit will almost certainly disappear immediately.
The larger issue here - which connects most of the posts in this very long thread - is that the game consequences of a minor losing its capital are too immediate and too devastating, especially in a game where most other strategic decisions play out over many turns. In the Balkans at least, there should be options for the capital to move to an alternate location. And there should be the possibility of not all units disbanding immediately when a country surrenders.