The processing shown after "instead" in the effect replaces the standard processing. For example, if an effect reads "Delete your opponent's Digimon with 6000 DP or less. If you have a Digimon with [Greymon] in its name, instead delete 1 of your opponent's Digimon with the lowest DP," and you have a Digimon with [Greymon] in its name, you delete 1 of your opponent's Digimon with the lowest DP instead of deleting 1 of their Digimon with 6000 DP or less.

Yes, you can process it. Even if your opponent doesn't have 10 or fewer cards in their hand, this card's [When Digivolving] [On Deletion] effect will delete 1 of their level 3 or lower Digimon.