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We don't need to have seen everything. It's common sense that all they used was their "avatars". Besides, my last statement is undeniable. Hashirama was explaining what the Wood Dragon does, meaning he had just used it on Madara. This then proves that Hashirama had those rods in him far before he utilized the dragon. This further tells that Madara could have binded him before that occurred. He did say he wanted to play with Hashirama before becoming a host. I'm sure he wouldn't simply over-power him before any fun occurred.
Edo hashirama beat Edo madara. There is no debating that, manga facts. It's like saying Naruto didn't defeat deva path
Reason madara wouldn't have used mokuton is because his mokuton is weak compared to hashirama even stated by himself. Hashirama would've turned madaras wood dragon against himself.