Just for reference.

It would be nice during the server joining sequence that if autoskin downloading is turned off, then LFS would override the loading skins while joining a server.

I guess this was just overlooked with the load skins before joining server was implemented. Otherwise it just doesn't make sense to attempt to load skins while at the same time telling it not to download them.

Yes it does make sense. LFS tries to preload the skins into your card's memory (if they are found on your hard drive - and if not - then preload the default skins of the cars that are running) so the cars can load much quicker when you finally enter the server, so that it says "a player is connecting" for much less time, so avoiding annoying the already connected players and making it less likely that you will see flying cars / invisible track when you finally get into the server.

But is there an issue I've overlooked? Is it causing error messages to appear or something like that?

The problem is, that a user who has disabled skin download will get an error message for each skin LFS cannot find.
http://www.lfsforum.net/showthread.php?t=25914