Indeed, "on" replaces « nous » in colloquial french. "On" is not so impersonal in this case. It's obvious that it has been a massive joke attack where several pesonnes lost lives in here !
So you're right to correct in "nous étions mort de rire" / "on était mort de rire"
But we can consider "on est" as "c'est" are speaking language forms as in "on est les plus forts" / "c'est les plus drôles", and these ones need to be mentioned in the course.
Lol @MacDamien Thank you. So you are saying that in certain cases "on" may be grammatically considered a plural pronoun? I knew the implication of "on" is often plural but I didn't realize that gave us the option to pair it with plural adjectives or nouns. I wonder if Lingvist has made a mistake here or if they're trying to make us grammatically flexible like native speakers?