His problem is that he's used Divine Challenge twice. Call them Divine Challenge [1] and Divine Challenge [2].
In round one, he uses Divine Challenge [1] on target A. He attacks target A; no problem. The condition of Divine Challenge [1] (engage target A, or challenge a target other than target A, before the end of his turn) is satisfied.
In round 2, he attacks target A again. He also uses Divine Challenge to challenge target B - call this Divine Challenge [2]. He has satisfied the condition of Divine Challenge [1] (engage target A, or challenge a target other than target A, before the end of his turn) - in fact, he's done both of those things. But Divine Challenge [1] is now ended. Divine Challenge [2] has it's own conditions: engage target B, or challenge a target other than target B, before the end of his turn. And he has done neither of these things.
At the end of his turn, since he has not satisfied the conditions of Divine Challenge [2], the challenge ends; target B is no longer marked, and he cannot use the Divine Challenge power in round 3.
He says "But I challenged a different target!" What he didn't do was challenge a different target than the target of that challenge, which is the requirement.
-Hyp.