Not sure about my casework and such, but my thinking is that if $X_{n,k}$ is the probability of $P_n$ winning round $k$, then we know this: if $X_{1,3}$ is true then $X_{1,2}$ must be true, i.e. $P_1$ won in round 2. Then $P(X_{2,2}) = \frac{1}{2}$ if $P_2$ didn't play $P_1$ in round 1, but $P(X_{2,2})=0$ if they did play each other. We also know that there are $\frac{8n}{2}$ players in the $2^{nd}$ round, leaving $\frac{8n}{2}-1$ players for $P_2$ to play against. Assuming he won round 1 and weighting each probability by its frequency,
$$P(X_{2,2} | X_{2,1})=\frac{1}{2}*\frac{\frac{8n}{2}-1}{\frac{8n}{2}}+0*\frac{1}{\frac{8n}{2}} = \frac{8n-2}{16n} = \frac{4n-1}{8n}$$
But we also know the $P(X_{2,1})$ is $\frac{1}{2}$. Therefore
$$P(X_{2,2} | X_{2,1})=\frac{P(X_{2,1} \text{ and } X_{2,2})}{P(X_{2,1})} = \frac{P(X_{2,1})*\frac{4n-1}{8n}}{\frac{1}{2}} = P(X_{2,1})\frac{4n-1}{4n}$$
$$P(X_{2,1})=\frac{1}{2}*\frac{8n-1}{8n} \implies P(X_{2,2} | X_{2,1})=\frac{(8n-1)(4n-1)}{64n^2}$$
EDIT: Fixing arithmetic errors gave me $\frac{4n-1}{8n}$ which is closer, but still only converges to 1/2, and in no way conforms to true blue anil's answer (which is the correct one).
EDIT 2: I think I've taken into account $P_2$ playing $P_1$ in round 1, but $\frac{(8n-1)(4n-1)}{64n^2}$ seems further off and still converges to 1/2.