"should it" as in "would it be a good idea?" Yes.
"should it" as in "is the PathPilot implemented to do this?" It depends.
The Python code that generates the gcode is in the file mill_conversational.py
There are a number of different cases (based on how wide/tall/deep the pocket is compared to the tool,) but almost all of them do something like the following before the next iteration:
Code:
code.append('G0 Z %s (Z Clear)' % dro_fmt % z_clear)
Thus, if youre "Z safe" height is not set, it wouldn't lift the tool.
However, there are many different special cases, and the code is a lot more verbose and longer than it necessarily needs to be, so it's hard to tell what cases exist where it won't do this.
If you look at the generated G code, it will have some comments around the various Z movements and pass starts, looking at those comments would make it possible to match it up to the generated code to see why it's generating the particular code in your particular case.