Any or all of your ideas will help, it largely depends on your climate and how long of a below freezing stretch you can expect. The drain outlet is supposed to be within some distance of the ground, 18" I believe, which is why it was configured that way. In areas subject to freezing, all piping carrying water should be run as far as practical inside the heated envelope, so the drop to within some distance of ground should have been done inside. If possible, rerouting the run inside, with only a very short run outside should solve the problem.
As BMitch suggests, routing the drain through trap would comply with plumbing codes and is the best solution.
Shortening the pipe could fix the problem entirely since the water may not have time to freeze. In frigid climates though, any water outside will freeze. The high outlet could damage you outside wall finish and be an annoyance to passers by.
Widening the pipe will require more build up before blockage, so if the freeze periods are not too long, this could work. In frigid climates, it will still block up eventually.
Insulating the pipe would probably be all that's needed, it has the same effect as shortening the pipe, without wall damage. Actively heating the pipe would certainly work, but is probably only needed in extreme cases. Heat tape that wraps around the pipe and is plugged in to an outlet, with a thermostat to turn off the current above freezing is a common hardware store item in cold climates.
You only have to worry about the attic if it gets below freezing in there. Attics, though ventilated with outside air, tend to stay a fair bit warmer than the outside. I would guess that unless you have good runs of outside temperatures consistently below 0F(-18C), you shouldn't have a freezing problem in your attic.
I'm not sure, but I suspect there is not an override. A blocked drain can cause significant problems if the furnace continues to run. By shutting off the heat, it is good incentive for the owner to solve the problem.
Your condensate line may not have the proper pitch to allow the water to drain.
Another option is a condensate pump. These are little water pumps that pump the condensation water from the drip pan out through the tube. This can be wired to run while the A/C unit runs, or when water is detected.
Out of curiosity, where does your drain line end? At some point I think it is up to high and not allowing the water to fully drain or sagging once it fills with water, then stops the drain from draining.
Best Answer
I'll try to break down what the inspector is describing. Keep in mind that these inspection reports will show "defects" that are simply things that do not meet certain recommendations they look for. They may not be up to code, etc. The problem with some inspection reports is all defects are called out in the same way. One defect can be seriously dangerous while another on is merely an annoyance. Understanding why it is considered a defect is the most important thing.
You basically have two issues. The first is that the A/C condensate drain is tied into the temperature and pressure relief overflow for the water heater. Imagine the pressure and temperature in the heater rises to a dangerous level and the valve activates. That's going to force scalding hot water to flood your air conditioner because they are both connected. The A/C housing will leak and the PVC pipe will not stand up to the temperature or pressure for long. This is not the way it should be done. The A/C condensate drain should flow into a nearby drain pipe. It's common for it to tie into a bathroom sink drain or similar.
The second issue is a little less clear, but we can assume it's related to the first. The inspector is saying that there is not a proper overflow drain to the outside for the water heater. This could be because the overflow doesn't run all the way outside, but since the condensate drains there it probably does drain outside or into the sewer. He probably means the overflow drain isn't functional because of how its tied into the A/C.
So, if you have a gas water heater, and you don't have access to a proper drain, you can get a special gas valve like the Watts 210-5. This is a temperature sensitive valve that will cut off the gas supply to the water heater if it gets too hot. The idea is that cutting off the gas stops the dangerous heating of water without it getting to the point of blowing water out of the TPR valve that doesn't have a proper drain.
The Watts valve seems to be pretty expensive - online prices range from $250 to $400. On top of that you will need some additional gas piping, and if someone else is installing it, you could be in the $800 neighborhood pretty quickly. Also if the water heater is old then any time you mess around with the pipe fittings going into the tank, you have a chance of doing irreparable damage if they are corroded (have to replace the water heater).
If the copper overflow pipe does go outside, then rerouting the PVC A/C condensate drain could be cheaper.