Solved! Go to Solution.
Let me ask again: what version of the free streetmap data are you using?
Make sure you are using the version that came with ArcGIS 10. these files should be dated from 2010. You should not see this kinds of route with it. The older versions may not have good hierarchy information and you may sometimes get odd results.
You can always compare routes with "better" data. For example, in ArcMap, on the standard toolbar with the zoom in/out icons, there is a Find Route tool. You can use this tool to solve routes using data/service hosted on ArcGIS online using better street data. Help on this tool is here:
http://help.arcgis.com/en/arcgisdesktop/10.0/help/index.html#//007z00000002000000.htm
Jay Sandhu