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Well I have good news on this front with a caveat. While using the first process noted above and then also this process 216668458-Creating-and-Customizing-Statuses-for-the-Workfront-Site, we worked with our config consultant and were able to get the custom status set-up and working with our Issue Approval process (see snapshot). The only caveat is that although as a sysadmin followed the steps, we could not get the custom status recognized initially but our consultant followed the exact same steps and was successful - she couldn't explain why though.
So until our organization needs this functionality created again, I won't be trying it again but know that it is possible :)