Your comments on this thread are correct including the part about the peg working to restore itself even if the STEEM price doesn't go up. @rycharde is incorrect, it does not take external action to restore the peg, only the passage of time (though perhaps a lot of time) and STEEM not continually declining to zero.

As far as the inflation or dilution, that happens when STEEM is created to fill the reward pool. Then it goes from the reward pool to payout, possibly being converted into SBD (which moves it, likely temporarily, to virtual supply as you stated). Conversion of SBD then moves it back to current supply. 

People looking at conversions as inflation or dilution are focusing on the proximate cause but not the root cause (paying rewards).