Yes, Kristen was supposed to be Millie. Then she got offered her TV show (I think, but it might have been the ABC Music Man) and had to drop out of the project. The role went to Erin Dilly, but during tryouts at La Jolla, it was decided to replace Dilly with her understudy (Sutton Foster). The rest is history.
I know there is a link somewhere that has the whole history, but I wasn't able to find it.
They initially brought Chenoweth in to read for Miss Dorothy. Over the course of several auditions, they decided to try and have her come back in for Millie, and eventually gave her that role instead.
As another poster said, when her pilot at NBC was picked up, she dropped out of the project and the role went to Erin Dilly, who was later replaced by Sutton Foster.
"The Girl in 14G," a song that had been written specifically to cater to Chenoweth's talents during the last workshop, was scrapped when she decided not to go further with the show. It has now become a staple in Chenoweth's set.
Tonya Pinkins: Then we had a "Lot's Wife" last June that was my personal favorite. I'm still trying to get them to let me sing it at some performance where we get to sing an excerpt that's gone.
Tony Kushner: You can sing it at my funeral.