Yes. At step 1 there are two 'i','s' and two 's','i', 'is' gets picked because it comes first. Then at step 7, because 'is' got formed, there are two instances

Yes. At step 1 there are two 'i','s' and two 's','i', 'is' gets picked because it comes first. Then at step 7, because 'is' got formed, there are two instances of 'is','s' and only one instance of 's','i' so 'iss' gets formed.