It's documented behavior of the DYNAMIC cursor (default for FORWARD_ONLY). See DECLARE CURSOR in BOL for details.

>My question is why the update of SomeTable.OrderKey within the loop can affect the order in which MyCursor records are delivered by FETCH NEXT.
>Experimentation seems to show that under some circumstances, records can jump around in the FETCH NEXT order as a result of the UPDATE command and can be processed multiple times within the loop. I wouldn't have expected updates made directly to the table would make it into the cursor while the procedure was running, but apparently this is what is happening.
>

>DECLARE @OrderKeyValue     decimal(10,4)
>DECLARE @OrderKeyField     decimal(10,4)
>
>SET @OrderKeyValue = 0.0001
>
>DECLARE MyCursor CURSOR LOCAL FORWARD_ONLY FOR
>SELECT OrderKey FROM SomeTable ORDER BY OrderKey
>FOR UPDATE OF OrderKey
>
>OPEN MyCursor
>FETCH NEXT FROM MyCursor
>WHILE @@FETCH_STATUS = 0
>BEGIN
>   UPDATE SomeTable SET OrderKey = @OrderKeyValue WHERE CURRENT OF MyCursor
>   SET @OrderKeyValue = @OrderKeyValue + 1
>   FETCH NEXT FROM MyCursor INTO @OrderKeyField
>END
>
>CLOSE MyCursor
>DEALLOCATE MyCursor