iRule - wrong variable definition ?

IP::remote_addr will never match those IPs with mask attached, so you should remove the mask if you want that condition to match.

I agree with Brad you should either set a default value for the variable, or use info exists on the variable you've set. Here's a potential solution:

when DNS_REQUEST {
    switch [IP::remote_addr] {   
        "10.10.1.32" -
        "10.10.1.64" -
        "10.10.1.160" -
        "10.10.1.192" {
            set status [LB::status vs Client_Monitor_VIP]
        }
    }
    if {[info exists status]} {
      if {$status equals "up"} {
        host 1.1.1.1
      }
    } else {
        host 2.2.2.2
    }   
}