Can one wear a small cloth while bathing or would it be 9×5 (or 10×6) which is difficult? Can one wear a third towel along with the pancha-kaccham? Can everyone wear a third towel?

The cloth that is used while bathing is called snana-shati which is small in size, it shall not cause discomfort while bathing.
There is no such thing as a third cloth, only a dhoti and upper garment.