There's a lot to your interpretation, I think by and large, rather sensible. The problem we share here, is that we cannot enter Putin's mind and most info on him right now is extremely unreliable and subject to extremely fierce ideological impositions from the "West" and Russia too.
Now that they're in this, they're going to have to make the best of it, as in, get as much concessions as they can get and declare a victory. Sure, Russia is now more closely aligned with China, but Russia isn't a massive market for China at all - perhaps the Taiwan issue is also one reason China is being diplomatic. But that's speculation.
As it currently stands, Russia simply has more to lose than prior to this war, as I see it. But. But, once we get verified, good data, then we may say with more confidence, how much of this went as planned and how much of it was a surprise.
Sure, I saw that report too. Meaning I saw it reported on some of the podcasts I watched, it's rather shocking. But shouldn't be, it's very, very rare for war to go as planned. Way too many variables.
You are certainly correct about denying reality and being inside a propaganda bubble. But it can only last so long before it bursts. Then again, North Korea exists...
Either way, if this drags on for too long, Putin is just going to have to swallow "reality", however he chooses to interpret it.
What's going to be surprising to see is how Germany and the like will react after Putin is gone (if we are still alive), he's not going to stay in power forever.