Gawain was obviously surprised to see Lilith Kant and Viscount Kant vanish like smoke.
He didn't imagine that Lilith Kant was also a product of the nightmare.
In his original deduction, Lilith Kant should be a living person and the only sober "dream creator" in the castle. It was obvious that he had made an error in his judgment.
Gawain immediately understood when he and Amber arrived at the giant stone coffin and looked at the two sets of skeletons and the Viscountess's corpse that was being protected by magic and had yet to decay. Lilith Kant was truly dead, but she died probably to activate this horrifying dream-creation ritual or so that she could have "contact" with her husband and son. She had truly given up her life.
