TCMcDuff: This game is proof that programmers are only proficient with machine languages. When they tell you you have only one time out left do not believe them you have none.
This is correct, and I agree with you that it's deceiving and a poor design (although it's not technically a bug).
My suggestion would be to always set the number of timeouts in your multiplayer games to 3 (or more). That way you can time out twice (or more) and still finish your game. I play a lot of multiplayer games and it's extremely rare for me to see anyone time out more than twice in a game.