That really, really spoils the concept of real-time collaborative coding. I hate to be harsh on Christmas day and all but as an idea, this is something that would be very useful. The actual implementation here, near useless.
The idea is fine, but the implementation, as Salathe pointed out, in this case is terrible. I suggest that you capture both users code (when they click submit) in 2 separate files or what ever. Then, you compare each one's code to the original, keep the differences and adding them to the original bit of code. Of course, this strategy needs to be further developed, but that's the basic idea (the technical implementation, actually).
I have optimistic thoughts, even though sometimes (if not always) life's a bitch.