Z is the equation of a PLANE. Z is LINEAR in the variables X and Y.
Then, you generated values in a square region. Plotting a planar surface over a square region in the (X,Y) plane, so Z(X,Y). The net result of what you did will be straight, parallel lines in a square region.
Is there any reason you would expect to see a circle arise from that in any sense? NO.
MATLAB cannot read your mind, nor can I. So what did you expect to see? Are you looking to plot contours of a planar surface over a circular region? Are you thinking you want to create a paraboloid of revolution, and then plot contours of that surfce, which would indeed be circular?