I thought so too, so when another chance came up, I used it in an answer (ho delle sedie rosse) and it was marked right. So Duolingo DOES know the more common word (which I've found in different self-study Italian books I have).
I reported the Italian as incorrect/having an error.
As far as I understood, when joining the "dove + è" the vowel "è" becomes under an accent, so one should pronounce "dovE" instead of "dOve". But in the live converse, I think, it could be not so distinguishable as in theory.)) Anyway, if you probably need to write down what you've heard you will guess by the meaning. Hope it helped))
I don't know for sure. There are many competing forces in modern Italian. But I suspect that the issue is that Google is simply trying to find the individual words. That's how they "think". The contraction simply reflects how it is actually pronounced. I suspect the only contractions that text to speech would recognize are those that actually sound different.