Mike Bird wrote:

I noticed some strange behavior which resulted from the fact that the before value is expanded in \setupfootnotes.

For example, the following test case will break if \noexpand is removed:

\setupfootnotes[before=\noexpand\undefined] \starttext \stoptext

Is this the intended behavior or is this a bug?

It is an unavoidable a side-effect. The 'before' bit is typeset immediately, because the height of the resulting material will influence page breaking. Best, Taco