I find that I actually bend me knee slightly as I arrive over step two. If I did not do this, the act of moving onto a straight leg over a foot that also has some toe rise would indeed make me too high at that point. But by flexing the knee slightly as I come onto it, I only take part of this potential rise during the early part of two.
Step three is basically taken by starting to restraighten the leg - this causes the other leg to swing closed, a closure that would start with the thighs and progress to the feet as my equally anonymous twin suggests. As the arriving foot closes under the moving one, I rise slightly higher in this foot to accomplish the weight change - in fact, I probably rise to a higher point than I could statically sustain, because the peak of the rise is immediatelly followed by the start of the lowering. If were demonstrating on action at a time, I would not attempt to achieve the peak rise until I was ready to procede into the next step.