The original question asks whether the frame of reference would be considered inertial, and to answer that I think you would need to know why the question is being asked, e.g., is one trying to answer a definitional question, or is one trying to "do" physics?
We commonly "do" (classical, non-relativistic) physics in rotating "frames" (i.e., the earth) even though the physics are clearly understood to hold locally rather than extending to infinity (or even to other parts of the earth). The "space capsule" example traditionally limits the observations (and physics) to within the space capsule.
As an aside: the ISS is big enough that the approximation begins to break down, i.e., tidal effects are actually noticeable within the station!