As has been pointed out by many people, this is intentional and correct. The poor mistress tries to heal you, but Auchenai is like no, that's one damage. This triggers the mistresses effect, since technically she did do damage, and she continues trying to heal you, but accidentally doing damage until you die. This has been confirmed by Ben Brode, and is not a bug.
So....... I think I found a bug. I had an Auchenai Soulpriest on the field and a Mistress of pain that I Cabaled. I attacked the mistressed into a doomguard. I was at 27 hp, I figured the mistressed would do 1 dmg to me. No that was not the case, it actually kept procing until I was at negative 3 then I died. I wasn't even mad I was just laughing the whole time. I'm pretty sure it's a bug unless it was something I wasn't seeing.