She's a collie, she will chase/herd, but it's good that she's responding to your training in this regard!

It does sound like a great friendship in the making, but as others said, I'd try to curb the picking up kitty in the mouth thing. As long as it is just "playing," things'll be fine. The St. Bernard we had when I was growing up was the same age as a yellow-gold fluffball of a kitten next door. They were great friends, their colors matched, and they played together, chased each other through the yards - which was funnier and funnier to watch as the Saint grew - and grew - and grew! People would almost run their cars off the road when they'd see 6-month-old Fluffy chasing a 6-month old (but 8 times as big) Freckles across the field!

Your pup will learn boundaries, as the kitten will surely set them with hisses before claws come out.

Freckles never did learn that ALL kitties weren't her best friend, and most would have cat conniptions when a full-grown 185-pound dog would come bounding toward them to play!