That could be correct, but it also might have another danger.

However, if it is rusty, isn't the steel already oxidized, that is burnt? Anyone help me out, is that right?

I think you might be able to create tinder by ruting steel wool in a sealed environment, like a ziplock. If I recall correctly, steel that is allowed to rust in the absence of oxygen, rusts incompletely, much like wood burned without oxygen becomes charcoal. With the steel that is imcompletely rusted, there is a danger of having a nasty fire when oxygen is allowed into the area. If I had the space, I might try some experiments, but they will have to wait until I move.