Does she still not know he's Xiaou Liu? She says such cruel things to him. I want to smack her over the head for being so blind. I think he is so much better than that other wimp she's in love with.

Xiao Yao found out Fang Feng Bei was Xiang Liu in season 1, fairly quickly.  Arguably, she always knew in her heart, from the first moment saw him in the brothel since he was literally in her eyes.   And as we've seen, Xiao Yao can recognize him Xiang Liu even when he has shapeshifted.

Both XY and XL say cruel things to each other, because neither wants XY to suffer grief.