Does the wallet allow a contract to be closed out at an agreed upon lower price? The point you raise here makes it clear that that's an important option for when a contract or an order can only be partially fulfilled.
When both parties agree on the situation, as in your example, and both negotiate in good faith, it should work fine. I guess escrow also pressures both parties to meet in the middle when they disagree, even if one party is objectively wrong but (because of ignorance or stupidity, as in many of the examples on that site) will never be convinced that they're wrong. That's often what would happen in real life anyway I assume.
Not directly. But, as you both are holding each other's collateral, you can agree on a new smart contract before you release the escrow of the old one. That makes the smart contracts malleable and allows both parties to upgrade or downgrade the contract.
Releasing the escrow gradually should be an extra feature. It's not extremely necessary but it would greatly boost the ease and pleasure of using the wallet. I have no idea what their roadmap looks like but that seems to be just a matter of time.
As for subjective disputes. Sure it will always be tricky. But that leverage will be there, both parties will lose out if one isn't happy. This is also true in current real life escrow services. The big difference though is that in real life it's a professional person able to mediate the deal. Online the wallet is just a blind broker that only ever cares about whether both people enter their personal key or not.
That said, real life escrow services are outrageously expensive. These people take huge fees out of the original escrow, at least this one is free.