Thanks!

I prob. missing something about [you're] "handing me your private keys to unlock that 1c output. Now if you ever released Transaction 1, I can spend both the outputs". What happens if you release transaction 1, then immediately release a transaction moving the funds away from that address? Seems like I have to be very vigilant and closely monitor the blockchain, fearing this will happen?

It requires dual signatures. One party has them both, the other doesn't: the one without has to use the pre-signed 1-day-locktime transaction.