>So is there a reason to >turn off auto ISO with flash.
Yes - the reason is as you thought.
When using flash, the camera meters for ambient light. With current Nikon's, if you have Auto ISO enabled the camera may increase the ISO (up to your pre-set maximum) in response to low ambient illumination - which results in more noise than you wanted in areas not illuminated by the flash.
Even though it's possible (as you have just discovered) to alter the base ISO value when Auto ISO is enabled, this just changes the point ISO will start from - the camera will still increase it to the same (high) value that it would have used anyway.