[Matt79]

My thoughts are that it goes like this, for instance:
1.01 Stephen - Pick Accepted
1.02 Chaminda_00 - Pick Rejected
1.03 Mister Wright - Pick Accepted
1.04 99* - Pick Rejected
1.05 Jamee999 - Accepted
1.06 Julian87 - Accepted
1.07 Samuel_Vimes - Accepted
1.08 NUFAN - Rejected
1.09 Somerset - Rejected
1.10 Michaelf7^7 - Accepted
1x.01 Chaminda - Rejected second time
1x.02 99* - Accepted
1x.03 Nufan - Accepted
1x.04 Somerset - Rejected second time
1x.05 Chaminda - Rejected third time Demoted to 2x.01
1x.06 Somerset - Accepted.

2.01 Michael - Accepted
2.02 Somerset - Accepted
2.03 Nufan - Accepted
2.04 Vimesy - Accepted
2.05 Julian87 - Accepted
2.06 Jamee - Rejected
2.07 99* - Accepted
2.08 Mister Wright - Accepted
2.09 Chaminda - Rejected
2.10 Stephen - Accepted
2x.01 - Chaminda's carry over pick - Rejected
2x.02 - Jamee - Rejected
2x.03 - Chaminda's round 2 pick - Accepted (finally)
2x.04 - Chaminda's carry over pick - Rejected - Demoted to 3x.01
2x.05 - Jamee - Accepted

etc.

If a selection from round 8 or before is deferred until one of the last three rounds, it still can only be used to pick a player that is not on the banned list.