Unexpected behavior:
I am encountering strange behavior of Oracle sequences with 11g (works with 10g):
CREATE SEQUENCE test_sequence
I can't reproduce on 11G, i.e. the table contains a 1 after following your steps.
However, it is debatable whether this should be considered an "issue", because sequences are never guaranteed to be gap-free. What START WITH guarantees is that the sequence will never return a value lower than the specified starting value - e.g. to avoid conflicts with existing data. I do agree however that what you are seeing is surprising and I would be interested to know the reason!