Is the Kleene star of an intersection contained in the intersection of Kleene stars?
Yes, it is true. But  the argument to support the conjecture is incorrect.

The correct proof is as follows: $L_1 \cap L_2 \subseteq L_1 $ and therefore $(L_1 \cap L_2)^* \subseteq L_1^*$. (argument: if $A \subseteq B$ then $A^* \subseteq B^*$).
Similarly $(L_1 \cap L_2)^* \subseteq L_2^*$.

Therefore $(L_1 \cap L_2)^* \subseteq (L_1^* \cap L_2^*)$ (argument: if $A \subseteq B$ and $A \subseteq C$ then $A \subseteq B \cap C$).

Anyway you can not write $(A \cap B)^i \cup (C \cap D)^j = (A^i \cup C^j) \cap (B^i \cup D^j)$.

Correct relation is: $(A \cap B) \cup (C \cap D) = (A \cup C) \cap (B \cup D) \cap (A \cup D) \cap (B \cup C) $

However $\bigcup^\infty_{i=0}(L_1 \cap L_2)^i \subseteq (\bigcup^\infty_{i=0}L_1^i \cap \bigcup^\infty_{i=0}L_2^i)$ is correct because
$\bigcup^\infty_{i=0}(L_1 \cap L_2)^i \subseteq \bigcup^\infty_{i=0}L_1^i $  and $\bigcup^\infty_{i=0}(L_1 \cap L_2)^i \subseteq \bigcup^\infty_{i=0}L_2^i $.