Does the sitemap.xml file does from the xmlsitemap module actually get generated? I see that there is a 1.xml file generated in the sites/default/files/xmlsitemap folder, but I do not see a file in the Drupal root. However, when I call http://www.example.com/sitemap.xml I do get the info. Is this the normal behaviour?
Yes, that's normal behaviour.

xmlsitemap_menu() includes a route for /sitemap.xml specifically.