Saw this and gave it a quick test because it seemed novel...but could have saved some time in just reading the skill description. It won't feedback loop because it only checks once "next time" and then ends.
Person 1 does "damage" triggering lifesteal from person 2, which then triggers lifesteal from person 1 ending both spells.
Too bad Vengeful was Khanhei wasn't affected by the update -- could use a bow to launch an arrow with a large arc against someone with it up, put it up yourself and have the scenario you mention play out. That probably is why it wasn't affected by the update.
Eh?