I frequently do large and complicated isometric drawings in 2D using LT 2009. These are good questions. An isometric is indeed a circle but with the i parameter turned on. If it's not showing in the circle command then you need to switch on the Isometric Snap.
Right click on the grid display button, select Settings and click on that radio button in the lower left corner. Now when you give the Circle command, the i parameter will show. Type i then you can create an isometric circle - a perfect ellipse.
But for general use on corners, I always use the fillet command or button and set it to a low number, quarter inch or less. It looks good enough and is much simpler. Remember, this is isometric ILLUSTRATION. It's not supposed to be engineering perfect. For that you do a solid model.
If you need a larger ellipse just create it the size you want and then move it into place by zooming way up and putting about where you want it. Then move it to touch the line needed. Repeat for the other side, then trim it back.
I hope this helps.
Frank