If a player withdraws from the game during his or her own turn, both players lose.

Does not work. 'Both players lose' is insufficiently defined in a game of this type. Apart from that, the game is iterated. Giving a mutual destruction option opens all sorts of potential gambits that I am almost certain you would not approve of me using.

How about this as an alternative to clause 2?

During his or her own turn a player may appeal for simplicity. If the opposing player's length is greater by X than the appealing player then the appealing player wins. Otherwise, the appeal fails and the opponent wins. I suggest 10 as a suitable X but advanced players could mutually agree on a higher number if their sequences naturally became more complex.

This would get around the distasteful 'we all lose' clause and ensure that both parties know and implicitly agree on what kind of difficulty to expect. It would also encourage a player to have a firmer grasp on how much he knows and how confident he can really be that he hasn't missed the obvious.

Edit: This would also handle the 'changing the sequence as you go' case. If your opponent guesses well, he'll force you to make a description sufficiently complex that he can appeal.