There is nothing the least bit woolly about it. I refer to: http://www.austlii.edu.au/au/legis/nsw/consol_reg/ptr2007339/s76.html
which clear states that a smartcard is only valid if used in accordance with the terms and conditions. Also, section 77A which states you must have a valid ticket, or pay up to 5 penalty units if caught.
If touching off results in a negative balance, you have violated clause 31 of the terms and conditions.
Probably. Practically I think clause 31 is really only there as a stop-gap against blatant abuse, otherwise the possibility that a negative balance could result in a fine or a some attempt to recover the fare from the user should be called out explicitly and clearly in the supporting user facing/user friendly documentation. It isn't - the discussion about negative balances is limited to "you'll have to fix that before you can use the card again".
(If the system has let you tap on (which means your balance is above the minimum fare for the particular mode you are tapping onto at the time), then you have a valid ticket (even though, prior to tap-off, your card balance will be negative because of the deduction of the temporary default fare). I then posit that even if you are on a train outside the outside the 10 km distance band that corresponds to that minimum fare, you still can't be nailed for fare evasion while on the train - as far as I can see, with use of Opal there's nothing to stop you from getting off the train, staying inside the paid area of a station, and then catching the train back to within the 10 km band. Until you tap off - the fare to be paid is indeterminate and I haven't seen a requirement that a journey be undertaken by most direct route or whatever when Opal ticketing is in use.
(Consider that if your card balance was sufficient, you could actually tap-off, leave the paid area, go and have a cup of coffee, re-enter the system, catch the train back and still only be up for that minimum fare.) )