Yes, I think this is the right interpretation. I don't think the nanotech
in the book is capable of self-replication. The reasons are not very
clear, but perhaps it is in part due to some technical difficulty (hard
to understand what, though), and in part it is pretty clear for political
reasons. The range of designs which can be built from the Feed is limited,
and this gives the suppliers of the Feed political influence and control.
So they have little incentive to try to develop self-replication.
Instead, an underground research project is implemented, using some kind
of bizarre mix of nanotech and biology, sex as computation. This is an
effort to generate the Seed, an alternative which will free the world
from dependence on the Feed. The Seed is self-replicating, able to grow
using available environmental resources.
Hal