Wow, a FLOOD of memories came back while reading this. My aunt had a Commodore 128, and I also remember a couple of more steps:
5.1 - Turn on the monitor, disk drive, then computer/keyboard (In that order)
5.2 - When the display showed, type "go64" to go from D-128 to C-64 mode. Or, you could also shortcut by holding the key with the Commodore logo on it as you turned on the computer/keyboard, before the display showed.
Back then, I wasn't into "Dungeons and Dragons" style games; I was more of an Infocom child. It's Infocom that I credit for my love of writing to this day!