Yes, this behavior is expected with managed solutions and option sets (Choices) in Dynamics 365.
Here's why and what you need to do:
Understanding Managed Solution Upgrades and Option Sets:
Why the Deleted Value Persists:
When you import the upgraded managed solution:
What You Need to Do:
You are correct. To completely remove the deleted value from the Choice field in your target environment, you will need to perform an additional step:
Important Considerations:
In summary, the expected behavior for deleting option set values in managed solutions during an upgrade is that the value is not automatically removed from the target environment to prevent data loss. You need to manually delete the value in each target environment after the upgrade and ensure no records are actively using it.
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