I investigated further and found that a product defect had already been logged for this issue.
#NIM065082- Add-in ComboBox dropdown is not under the ComboBox, it appears under the caption.
The current status of the Bug is 'Rejected'- Reason for Rejection is "as designed"
Unfortunately, this is by design and part of the add-in framework.
The workaround would be to keep the showCaption="false".