Idea One: This type of situation calls for a good Narrator to rule that the person "bringing the knife to the gun fight" loses, and loses big.
Oscar Wilde initiates a Rapier Wit contest with a dark troll, who promptly whacks him with a lead-filled snowshoe. I, as Narrator, ask Oscar's player if he wants to reconsider his choice of abilities. If Oscar doesn't, since I consider Rapier Wit to be less than useless to defend against Lead-Filled Snowshoe, Oscar's Rapier Wit skill level and AP are reduced to 1 (if he rolls a one, he only fails instead of crit fails). Unless the dark troll is really unlucky, I suspect that Oscar is down, all because he was an idiot.
Let's say that Oscar instead chooses something useful like Scampering Off. In this case, he ceded the first attack (because he was an idiot and tried to banter condescendingly with a hungry troll), but he uses Scampering Off (with any appropriate modifiers) and the AP from Scampering Off.
 I'm not sure if this is a normal part of the rules. Any opinion on this Roderick?
Idea Two: It takes two to have an extended contest. If Oscar tries Rapier Wit on the dark troll and the troll responds with the lead-filled snowshoe, then the Rapier Wit "attack" is resolved with a simple contest and the troll starts an extended contest with his attack. It's up to Oscar to come up with a countering ability for the combat extended contest.
Idea Three: If Oscar's Rapier Wit is some sort of feat that could actually be used to oppose the troll in physical combat, then the extended contest works normally.
Overall Philosophy: Narrators need to maintain some control over the game to keep people from doing stupid, illogical (dare I say munchkinish) things for some metagame reason.
P. S. This is similar to the answer I posted to the list earlier about what happens if a hero tries to talk reason and is attacked. Because of your question about whether this type of situation has been addressed, I'm copying that answer below (I hope the list forgives this reposting):
At 08:10 PM 03/21/2000 -0500, you wrote:
>I think that I may have a way around this dilemma:
>You start off with Talk Reason-10, but your opponent responds by taking a
>whack at you. Fine; the Narrator's job is to ask you if you intend to
>combat the cad with your Talk Reason 10 or something else. You then have
>the option to switch to your Nifty-Sword-Stuff 10W2.
>My reasoning is that you chose Talk Reason before the extended contest
>started. Your opponent has started the extended contest by swiping at you
>and you can choose what skill you will use to respond. You may continue to
>use Talk Reason to defend yourself (at a substantial improvisational
>modifier) or you may choose a more prudent course of action. I, as
>Narrator, would still hit you with an improvisational modifier if you
>didn't have your sword out and ready while you were Talking Reason (if you
>had your sword out, that may have been worth an improvisational modifier to
>Talk Reason). The end result is that you have ceded the first attack to
>your opponent by trying to Talk Reason instead of attacking.
>This may not be canon, but it works for me.
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