If a character has Parry (or Reflect) and is attacked by an appropriate attack form, can he use one of these talents after an ally has already done so to protect him with Circle of Shelter?

Sounds reasonable, both characters will be suffering the strain cost so it's not a tactic that's going to last for long. Quite cinematic too, a 2v1 Jedi v Inquisitor battle, both Jedi working together

If you somehow have two characters both with Circle of Shelter each covering the other, the degree of overlap could start getting ridiculous.

True, but at a cost of 3 strain each per attack they can only keep it up a few rounds, and that's ignoring other actions, extra maneuvers, Threat etc.

They will also both need to be at least Dual Spec to have a significant number of ranks in Parry & Reflect, plus all the Supreme P/R are deep into trees, and if both are using those talents then they are not fighting back.

The thing I would not allow to stack as easily is Improved P/R. Each would require a separate Triumph or 3 Threat to activate their own instance of Improved P/R.

The other thing is I think it would not come up as often as they would like it too, there are many times a party will split up, as well as being spread out due to necessity... If they begin to abuse it then Blast is always an option!