I will note that I was a little confused at first since I must have read the rules too quickly. For some reason I was thinking that you only needed to include two of the starter letters.
Anyway, am I correct in saying that each word must contain all of the letters in the shorter word directly above it? I might be misunderstanding, but isn't that essentially the same thing as what you currently have: "each word should ... contain both the starter letters and the letters of the shorter word"
Yes, that is exactly right, and a nice way of putting it! I think the only reason we hesitated to state it that way is that the first row (the starter letters) is not a "word", but maybe that's ok!