How are steem rewards calculated when the price of steem is less than $2?

There is no difference in the reward calculation when Steem is less than $2 compared to when Steem is above $2.

In both cases the proportion of the payout that has been chosen to be paid in Steem Power will be divided by the "average" Steem price given by the witness price feeds (where the average is the median over the previous 3.5 days). The proportion of the payout that has been chosen to be paid in SBD does not require conversion since the blockchain always assumes the SBD price is $1.

However there is a further complication that arises when the total amount of SBD issued by the blockchain reaches a certain threshold (5%) in comparison to the total value of Steem in existence. In these conditions SBD issuance is restricted and part of the amount of SBD that would be issued in payouts is reduced and replaced by liquid Steem payments.

The idea behind this restriction is to prevent issues arising with the SBD peg - in brief, a certain value of Steem is required to back each Steem-Backed Dollar and the restriction comes into play to ensure this is the case.