When you go to the ground, THOSE rules take precedence over the upright catch rules you're citing. A catch has 3 parts: control, feet down, and time. Back then you could complete a catch while upright or after going to the ground. The latter is because you DIDN'T satisfy the time element (football move or "time enough" to do one) because you dived or are falling and can't/don't do a football move. So if you can't do part 3, you have to keep the ball in your possession through hitting the ground.
Some notes about what you mention: 3 steps wasn't in the rules then; you don't switch hands when you grab it with 2 and choose to put it in 1; reaching out is not a lunge where you "gather yourself" and push forward per the rules. That is the ONLY thing you can do get out of a going to the ground tag per the rules. So you could wave to your mama on the way to the ground but still need to control the ball after hitting it. Also, yards covered or number of steps taken do not matter when going to the ground is called.