There isn't anything technically wrong, but there are some human factors in play. It's generally a good idea to avoid extensions with a leading 1, especially with a 4-digit dial plan.
The North American numbering plan typically uses a "1" to denote that ten digits follow in the form of NPA (area code), prefix (exchange code) and last 4 (number). If a person is dialing while looking at a phone number on paper or a screen, they'll typically dial 1-NPA (then pause to look up the rest of the number), then either the prefix or the remaining 7 digits. The pause after 1-NPA is the issue.
If you don't use a 9 as a trunk code, then people dialing 1-39X-555-1212 for example will often pause after the 1-39X. Your dialplan timeout will punt that call to an extension rather than waiting for the rest of the digits. With 4-digit extensions starting with 2-9 you can set the dialplan to [2-9]XXX and be less likely to have timeout conflicts. People don't normally pause dialing after four digits but they do after three.
If you do use 9 as a trunk code, then extensions starting with 11 can be a problem if someone accidentally dials a leading 9 before the extension, and that obviously rules out extensions starting with a 9.
Bottom line is that it will work but isn't the best choice because of the way people are used to making phone calls. If your carrier assigns a block of DIDs 312-555-13XX and you want to match the last 4 you can do so if you want. I would make the inter-digit timeout on the phone dialplan a bit longer than default in these cases.
I'm not sure what Adtran's reasoning was in eliminating 1XXX from the extension dialplan in the GUI, but it was probably similar thinking. Whenever possible we like to use [2-8]XXX for extensions. A leading 1 on a 3-digit plan is actually not as bad.
It seems like the "Dial 9 for outside" convention is going away. Cell phones send the digits en-bloc, nothing happens until someone pushes SEND. SIP phones work the same way under the hood, you can hit a DIAL button or often the # key, or they rely on a timeout to resolve conflicts. Where it gets trickiest is with a conventional analog phone or fax machine which either requires a totally conflict-free dial plan or a timeout. In order to be conflict-free you need a trunk code, usually 9, to signify that what follows isn't an extension.
We are planning to address this error message in a future release.