I'm no Bitcoin expert, but from skimming the paper it seems that the way they were able to achieve this (being "trustless") was by adding new opcodes. You record your position and commitment to the wager in the blockchain, at which time your coins are transferred to a "sidechain". Basically, the blockchain itself holds all the wagered coins.

The part that seems a little weak is they've created a new resource, Reputation, that allows you to report the outcome of a wager. Reputation is tradeable, and therefore gameable.