Yes, this is expected behavior and is due to the AutoDiscover records. This is why I recommend customers perform the AutoDiscover record implementation as close to transition as possible to limit the amount end-users are affected by it.
Basically, even though Outlook is set to preferLocalXML, it still makes a DNS lookup. After doing so, it notices the difference and prompts the user to confirm they still want to go with the URL indicated in the XML file.
Have a great day,
Dan
www.insecurityinc.info