"Converting" a PDF to a PSD means they will rasterize everything. No live type, no vector paths, everything will be raster (pixels).
Now, that in itself may not be an issue. However, I'd be wary. The printing process typically uses a RIP (Raster Image Processor) which rasterizes everything in order to make the plate for press. But Imagesetters work at much higher resolutions than merely converting a PDF to a PSD. Imagesetters typically covert at 2400DPI or higher. This ensures there's no quality loss in the platemaking/direct to press process. I would highly suspect this company will be doing a straight PDF to 300ppi conversion, actually reducing quality overall.
A couple things to be aware of....
PDF is NOT an "inferior" format. In fact it's a superior format exactly because PDF supports live type, vector data, etc. In fact, a print production team asking to convert PDFs to PSD has an inferior workflow. The only thing this "conversion" will do is possibly lower the quality if the piece. It will never increase quality in ANY respect.
No, this is not standard. 99.99% of the printers you will encounter want PDF fils or native application files and most often providing a Photoshop file would be undesirable.
Reading this is like watching a guy build you a table and only using a screwdriver to pound in nails.... sure it might work, but the quality of the build will never be as solid if he just went bought himself a hammer. The company has some piecemeal workflow to get things done and doesn't own actually printing equipment such as a imagesetter/platemaker, etc. Chances are they've got some sort of digital copier and by converting your PDF to PSD they can run copies easier or faster.