Mathman said:
But Chuckm and Ptichka, who are experts on these things, have both agreed with this interpretation above (posts 13 and 14). So that gives me confidence that this is correct.
The pertinent paragraph, 2.2.d, is very clear:
A maximum of three (3) skaters/couples in each discipline from the host country may skate in the host country’s event. This includes skaters/couples selected according to category 2.1 and 2.2 above. If the country chooses to not exercise its option for the three (3) skaters/couples in any discipline from its own country, the remaining slot(s) must be filled from categories 2.2 a) and b) above.
There are no restrictions on the host countries' selections of their own skaters if they choose three, except for the limit of three (and the seed requirements -- i.e., not being able to choose Meissner and Cohen). If the host country chooses skaters from the host country who are guaranteed spots ("category 2.1 and 2.2 above") then they count toward the total of three. If they don't -- for example, USFS chooses Suguri (from 1-3), Asada (replacing Cohen) (from 4-6), Rochette (from 7-9) and Kostner (from 10-12), Liu, Sebestyen, and Leung from top 24 ISU ranked, and Karademir and Volchkova from the top 75 ISU rankings -- they could choose Stephanie Rosenthal, Megan Williams-Stewart, and Danielle Kahle as the US entries. Or if Kwan wanted to skate, they could choose Carter (if she's still skating) from the top 75 rankings, and choose Kwan as the 13th skater, with Rosenthal and Williams-Stewart filling out the roster.
If the host chooses less than three from its own country, only then must it choose from skaters who are guaranteed spots (except for Junior medallists). The US did this in 2005-6 for Skate America Men, where they chose Goebel and Lysacek and not a third US man.
The host nations choose the skaters who will appear in the events, not the ISU. The host chooses its three first. Then the 1-3 seeds that aren't chosen by their own host nation get chosen in succession by the other host nations. For example, if the US choses Meissner among its three, Russia chooses Sokolova (moves up because Cohen doesn't skate), and Japan chooses Suguri. Then France, China, and Canada would each in succession choose one of the three. (In what order, I don't know.) Same with 4-6: Japan chooses Asada. Then US, Canada, China, France and Russia choose from Nakano (2), Meier (2), and Asada (1). And 7-9 and 10-12. After that, the skates who are guaranteed one, etc.
What I've noticed in the past is that the Federations are sure to choose skates from other host nations to fill out their roster.