I tried it, picked out every last arrow from that guy in the thieves guild and replaced them with daedric. He still shoots steel arrows for some reason. I am sad.
You have to pickpocket the EQUIPED arrow that he is currently firing. So you Place your arrow, then using the PERK that allows you to take equiped items/weapons you remove his equiped arrow plus any others just in case, then when he starts firing he will equip the wanted arrow and you get to harvest away.