those on Depth 2 in your custom list (so those people trusted by the people trusted by the people you trust!) would now need to be trusted twice by those on Depth 1 in your custom list.
I think you're off by 1 level. Users you put directly into your trust list are depth 0 for you. Instead of a trickle-down I would recommend setting depth to 0 and manually adding those whom you trust from deeper levels.
I thought I got it right? The people trusted (Depth 2) by the people trusted (Depth 1) by the people you trust (Depth 0).
I keep my depth at 2 because I do like having a fairly large network, but I do also go through and remove those who I feel mis-use the trust system as-and-when I see them. I do wish that we had a trickle-down feature though, just so that a single rogue agent in your trust network who you've missed can't damage things too much. I'm also considering the fact that I'm willing to bet a large portion of this forum is using Depth 2 settings.