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The Insert button was added when you add a new test step so that once you have entered in the data, it will save the current step (same as Update) and also create a new step. This was to avoid the user having to click the mouse back to the top of the test step list and click "Insert Step".
If you do click "Insert Step" at the top it will add a second step in Edit mode. You can update the text on both steps and then click [Update] which will commit both steps. I'm not sure why it didn't save your existing new test step. Did you click [Cancel] instead of [Update]?
You are correct, we have verified this case. We have logged the issue as a bug to be addressed.
I would make to use either the INSERT button on the actual row being edited or just click UPDATE and then the "Insert New Step"