It is not possible to rename a development path, due to auditability requirements. You can effectively do this going forward by creating a branch of the current development path from the tip of the current one, and giving that new development path the new name. In Integrity Lifecycle Manager 10.8, it will be possible to mark the old development path as inactive so that no further changes can be made against it, which would effectively give you the same functionality, while preserving the auditability of the process.
Your understanding is correct. Alternatively, you could create a new dev path off the parent line, and then migrate tip of the old dev path to the new one, so that instead of X.X.X.X.1.1, you'd get X.X.X+n.2 ("X+n" because there might have been dev paths created between the old named one and the new one from the same branch point, and "2" because "1" will be a copy of X.X, and "2" will be the checkpoint after you've propagated X.X.X.X to X.X.X+n.1 and taken another checkpoint).