There is no overdub function as such on the Keystep, so this shouldn't be happening. I don't recall this being an issue with older firmwares, but make sure you have the latest firmware installed for a start (using MCC).
Changing the length of the sequence will preserve the notes past the last step of the new pattern length, depending on what mode you have set sequence length update to in MCC (but this doesn't sound like your problem).
As far as the sequence still running while you are in Arp Mode, I've never heard of that happening before. I'd start with a factory reset (press both oct+ and oct- while powering up, back up all your sequences to MCC first) and a firmware reinstall to see if that fixes the problem (download the latest firmware from Arturia then click the firmware button in MCC, it'll look for a recent update online, then ask you if you want to update manually, click update then point it at the firmware file you downloaded when it prompts you to).