I don't think so. I'll try to give 2 examples to put your mind at ease:
- When I applied for the PhD at my current institution, I was already doing my masters there. Two places were advertised. Myself and 4 other class-mates applied. I got one of the places, someone from another university got the second one.
- I was also offered another funded place at another university around the same time. 1 place was advertised, I met a few masters students from that University in the waiting room, also waiting to be interviewed for the same place. So they didn't select one of their students just because they knew those students.
So, good luck with your application. And don't worry about things like this. It will only affect your performance at the interview badly. Think positively