Hi Raj,
Please search before posting. It is a very common BW process that is discussed since many years. I have to correct you on some of your steps, and also give contradictory response on some of the points (Considering your scenario, i.e. LO only)
1) To the best of my knowledge, Setup tables are generated once you activate your datasources, which means you cannot delete Setup tables first and then install datasources.
2) You have to Lock users before filling Setup tables, and then delete SMQ1 entries. Since it is your first time with LO, you can delete your extraction queue instead of "Clearing".
3) After you init without data transfer, you cannot just run delta, but first run the Repair Full request for a DSO data target, or Full for a cube.
4) Your extract checker will fetch records (based on the mode selected in RSA3) from either the setup tables, or the ques, but not from the database or base or application tables.
5) It is a good practice to Replicate your Datasource first, and then install BI content, but not the other way around.
Thanks,
Ranga.