Yes, that is correct. And it does take ages and a lot of patience - it's not the usual interface-drag modelling most 3D programs use.
(Sorry, I was meant to be getting net at home, but that's been thrown because my motherboard melted for no apparent reason, so I need to wait for a new one to be delivered and put it back together.)
Usually, if you export with Blender and Copy-Paste the entirety of NITriShapeData it won't let you because Blender exports a 4.something Nif, and ZT2 uses 10.something. But I think Simba's (don't pm/bug them) figured out how to change the versions in Blender - in which case, it would save... insane amounts of time. It might only work if you've got the same number of vertices in each nif but I'm not sure (since Blender sometimes merges vertices located in the same space and you end up with less)
To get rid of the other, lo-res models, you find (animal)LOD1:0 and 2:0 (or similar), right click, and delete. After that, you save as something different all the time (so you've got the originals still) then when you're done, open the new model in NifSkope, rightclick the NITriShapeData you've been editing, click copy, then use the menu to open the original, find the NITriShapeData in there, right click, and Paste Over. (Ie, you don't remove them and put them back in, you isolate the one you're using then paste it back into the originals.)
The game won't load .nifs without the lower res models (it switches to them when you zoom out so there's less to process when you're out and got a lot on the screen), but the only reason I delete them is to see better - if you can transfer from the blendered one directly rather than manually, that won't be neccessary.