Yes, of course, this is expected behavior. Your M1 is in linear mode with Vds virtually equal to 0v. This is because your input common-mode voltage to the diff. pair is too low. If I look at the operating point of the diode connected transistor M0, I see it requires Vdsat=500mv, the same should be for M1 if they are the same. But you have 500mv applied to the inputs of the diff. pair and nothing is left for M1 since the input transistors alone require Vgs=500mv. For this circuit you'll need at least 500mv for M1 and another 500mv for Vgs of M2, M3 (but may be more since the current will be 250uA instead of 60uA), so at least 1v at the input. May be you should consider increasing the size of M0, M1 so they work with smaller Vdsat. Adjust R3 accordingly, or even better use a current source instead of a resistor.