Hi Jon,
Sorry - I did not realise this was in relation to picking for production orders. I have never done that (not sure I even knew it was possible in WMSII).
However, if it's similar to the same functionality for sales orders, I don't understand why the output order is stopping you from posting the picking list. Normally, the processing of the shipment / picking route will handle the status of the output order.
If you really don't want to do this, you can turn off 'Consolidated picking' functionality. I hesitate to advise you do this, because it would likely have a big effect on your process.