Which is also silly. Iron is a component of steel, and steel was developed because it's better than iron. I don't see why I would use iron when making a steel battleaxe when I'm already using steel.
Regardless, I'm sure they have some justification like 'Oh, the rivets are made of iron,' something that arrows don't have. The only part of an arrow that's metal is the head, and there's no room to smelt down iron into the steel. Furthermore, if you did allow iron and steel, I'm pretty sure it would just be steel, albeit with a lower carbon content.
Yea, I was thinking about the iron components earlier, and the only 'reality' justification is... welll, rivets, fasteners, buckles, ect. Steel = expensive, iron = cheap, Make the 'cheap' components, from an even cheaper and easier to work with metal.

(hell we still have 'iron' nails and the like..)
But yea, tey'd have no point in 'arrows', course, you'd probably want some 'leather strips' used in it.
Not to be rude but your wrong, Steel is made from Iron! Blowing Hot air into molten iron which is called the Bessemer Process, This removes impurities while turning iron into steel. These are two distinctly different materials.
yes, and Steel by definition is an Alloy, simply due to the carbon content.
The Corrundum in game, simply makes the steel, closer to a Steel Alloy, probably a version of http://en.wikipedia.org/wiki/Stainless_steel or maybe even http://en.wikipedia.org/wiki/Maraging_steel.
Whats more worrying is there horrible ratio. 1:1 iron/corrundum ore? ewww