Converting a Lead Does not Change the Lead to a Prospect

Under Setup > Sales > Sales Preferences the Prospect Status - New has a Default Status of Qualified which falls on a Lead Stage.

If this is unchanged Leads that has a Lead-Unqualified when converted will be converted to a Lead - Qualified status instead of a Prospect Status.

To resolve this one needs to change the Prospect Status - New under Setup > Sales > Sales Preferences to a Prospect Status.

Enhancement#140965 is currently filed to have this setting changed to a Prospect status instead of a Lead status.