It does that with quite few words. The one that really annoys me personally is "its". It always changes it to "it's".
I trying turning off auto-correct while leaving spell check on, but then for some reason it doesn't mark the words.
Just keep using it. It will learn your typing and eventually, it will turn out relatively perfect typing, no matter how "off" you are. If it says "so" when you mean "do" (or visa versa), just click the "x" on the popup. It will learn what you are meaning to type.
Don't give up on this. It's one of the iPhone/iPad's greatest features and works better than any other that I've encountered (incl: BlackBerry and Android). The more you type, the better it gets. When you clear the menory, you have to start all over again... so think twice before you do that.
In this vain, has anyone had trouble actually hitting that X? Every time I have an autocorrect that I don't want and try and hit the X it just replaces it anyway. I don't think I have huge fingers but I do have relatively big hands.