My Shortcut doesn't get me what I wanted

I’ve set in Auto-Title for “Title” to option+command+1 system preferences. It’s working for heading, sub-heading, small-heading, etc. But when I press option+command+1 it replaces my text with the following text: “Steve’s Way”.

When you assign a shortcut via the system preferences, it is automatically assign to any menu items that fits the bill, regardless of where it is - and usually the one used is the first item located by the OS. 

What you describe is Mellel interpreting option+command+1 as a reference to the document variable named "Title" (see File > Document setup). To avoid that, open Mellel's preferences and under Document setup change the Document Variable's name Title to something less conflicting for the shortcut).