I believe they knew, but they thought they could keep a lid on it. I think the White House expected the truth to come out: too many people knew about it. But, they didn't expect the knee-pad media to cover it.
With the knee-pad media's cooperation, they could just dismiss it as "right-wing opposition". It would echo around the blogosphere, but not break out to where the LIV's (low information voters) would be aware of it. Since that is Obama's core support, it wouldn't matter as long as it stayed off the nightly news.
Now, it has blown up in their faces and they are scrambling to do damage control. I don't think they expected the opposition from Democrat legislators, although it has been somewhat muted.