Like Cari said, I'd stay positive in the updates unless it's something that needs addressing right away, like aggression, injury, illness, etc. There's no need to worry them while they're gone unless there's something they can do or you're unable to provide a safe environment for everyone in your home.
I like to address any incompatibilities when the owners come for pick up, emphasizing the positives and how much you enjoyed their dog (even if that's questionable) but explaining that based on your experience during the stay, you think their dog would be happier somewhere else in the future. I don't like withholding information because often the owners don't really know how their dog reacts when they aren't there. I find it less awkward than leaving the owners with the impression that everything was great than turning them down later, and I think it helps them pick a better match the next time they need a sitter.
In your case, I'd let them know that their dog really wanted to engage with your dog, but since your dog is more shy, neither of them were as happy as they would be if they had dogs around who matched their own personalities better. Their dog didn't end up getting the benefit of a playmate, and yours was uncomfortable with the attention of a more assertive dog. You can even let them know that you think their dog would have a great time with someone who owns a more confident, outgoing dog. Thank them for choosing you and give the dog a happy goodbye, then sigh with relief and reassure your pup that they won't have to deal with this guest anymore as soon as they're out of sight.