PG:
Your reading more into it. I know you want to replace "three digit arithmetic" with 3 significant figures. Don't. That's not what's asked.
You cannot do the problem with 1234.5678 with 3 digit math.
I don't like the term (chopping). Truncated or truncation is the proper term.
Three significant figures is a different problem.
I think it's an example that's poorly done and leads to confusion, but 1234.5678 to 3 significant digits is 1.23E1
This is "What does teach want"? Anyway you look at it, when I count 1234 is 4 digits and so is 1230. 123e1 is 3 significant digits and so CAN 1230 be 3 significant digits, but only 123e1 makes it CLEAR that it's 3 significant digits.