Once you take control of their sword with a Lockdown there are a couple of "right" options, but attacking with the dagger is not one of them. Despite this, in that short moment of decision, you would be surprised at the number of people who choose this option because they think there is a clear path with the shorter weapon.

Ehh. If you look at the initial "lockdown" position, in covering the opponent's sword with your dagger, you'd be also covering your own sword at the same time, making it super awkward to get your long blade in play. You're kind of crossing your own arms, and tring to get the shorter blade across your body. Given the way he's set it up, he's further away than I'd be comfortable/instinctively wanting to attack with a dagger too. Mainly because of the danger of him being in the centerline, but also because of the distance the dagger wielder has to move to land. If I was going to though, I'd probably try to go to a low first position while passing diagonally to my left, hopefully getting my hilt and sword to the inside to cover while also going in for the dagger. Given that my opponent would have the initiative and the angle f the blades, I wouldn't like my chances of covering. Even if my opponent wasn't RC.

Actually, if you wanted to cover with the dagger, you might be able to get a poke at the knee by disengaging low. In a tournament or sparring setting thrusts to the knee or shin don't get called a lot since they tend to skitter and slide off hard leg protection. Basically it isn't obvious you scored a solid hit.

You are correct--and a smart swordsman will indeed seek to free their sword before pressing to the offense. If, however, someone in this position did want to press the attack (say for example they saw the move coming due to a tell) they can easily flow into a moulinet cut to the head. But, again, this is easily parried and because of that a fencer who knows their opponent is fond of cuts could use the Lockdown (overbind) as a means to prompt this predictable cut and deliver a fast parry/riposte.

Not to worry, what I teach always comes at the art from a martial perspective. But when a technique also happens to lend itself well to competition I feel compelled to point that out as well.