"That is the first step."
Translation:Tio estas la unua ŝtupo.
"Tiu" means that person or that thing, i.e. something which is already known. For instance, someone could offer you a bowl of fruit and say "Kiun vi volas?" (which one do you want?), and you'd reply "Mi volas tiun" (I want that one), picking out a specific piece of fruit. "Mi volas tion" means "I want that". There isn't the same impression of picking out a specific item. Not sure about incorporeal or metaphorical usages out of context; I'd need an example. It seems to me unlikely that "tiu" would be appropriate.
Yes, it is an error. You're translating the expression "That is the first step". You can imagine you're pointing at the step as you say it. The word "that" refers to a real thing, the step, so you need to translate it. If you just said "Estas unua ŝtupo", that would mean "There is a first step", i.e. you are talking about the existence of a first step. Maybe if you had skipped straight on to the second step, someone might say to you "Estas unua ŝtupo" to point out that there was a first step which you had missed.
"Ŝtupo" by the way, means a step as in a staircase or possibly in a hierarchy. It is not a footstep, so this is not what Armstrong said when he took his first step on the moon. That would be "paŝo".
Regarding "paŝo", I've just tried "Tio estas la unua paŝo", and it was accepted.