replacement windows

If they used th original frame the windows are indeed smaller. We had them replaced and mine are for the same reason.

Replacement Windows
I have some replacement windows and they did not remove the trim; they merely inserted them into the existing trimwork (from the outside) and yes, the amount of glass is smaller than the old ones. They should have caulked both inside and outside but it doesn't look as if they did. It's maddening when workers do not take the extra steps to do the job right.
I'm not sure why the inside trim on yours had to be removed as all the models of replacement windows I've seen are just shoved into the existing frames.
At least it sounds like lots of people have the same problem - for whatever that's worth.

Old glass is removed, new windows inserted in old frames. 1" vinyl stock attached with window tape and caulking, matching the new window vinyl, hiding the old frames. Thats the "Quick" way. Its unfortunate, but if you had aluminum frames before- its just as easy to cut the frames out with a skill saw and install windows that run sheetrock to sheetrock( or plaster) The contractors measurments must be more precise but it looks way better.And the bonus is you can change your window sills while your at it. But getting back to the your question, Yes very common. Call them and make them install the vinyl trim to hide your old frames- that is always included with that type of retrofit.