oo! That's unexpected! I didn't realize that the previous substitution failed to affect ...
If you think about it, it has to be that way: otherwise you could end up subsituting out something that you've just put in there earlier in the same subtitution, and something like s/und/underground/g would get stuck in an infinite loop.
But it doesn't matter whether using the already-replaced text would enable further substitutions or prevent existing ones; in neither case is it taken into account.
Smylers