Cast into two-deep water and the bobber will often glitch to one block above the surface of the water. Other casts may cause the bobber to glitch between 1 meter under water and the surface. In this case it still produces bubbles as it moves.
The bobber's up-and-down movement is very similar, possibly identical to what you sometimes see when villagers and other mobs sink into the ground, except here you have a floating item rather than a sinking one and it never turns black. It's /not/ the same as the bobber's normal movement, which may or may not be superimposed on top of the glitchy behaviour. I've experienced the problem with sinking mobs for some time now (not seen yet in latest build however), but this bobber behaviour is completely new to me.
BTW, this behaviour begins /after/ you've cast the line.
The height of the bobber depends on the where the player aims when casting the rod. Looking down the bobber is above the water, looking up the bobber is below the water, the bobber is on the surface if the player looks directly horizontal. (1.9-pre2)
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Added an animated GIF image of this bug occurring.
The first two frames are of casting while stationary, the next three are taken while walking into the river.
Does not neccessarily occur when close to the player. The line is also stuck when the bobber bounces of the edge of a solid block before it hits the water. Then it happens then no matter what the distance is. At least you can still catch fish from the air there. 😃
It seems that casting while standing on half block (being at a half height elevation) can also cause this. (or might be the cause)
I've seen this while standing on perfectly ordinary blocks. It's way more obvious when you're fishing up close, and makes fishing look very odd then. However, on examination, this seems to be usual behavior. Possibly meant to make the bobber visible? Still weird that it can't just be on the surface of the water, even if that makes it less visible when "dipping". Also, confirming for 1.5.2. (ETA: also for Ubuntu.)
Confirmed in 1.5.1. The line must be cast extremely close to the player to reproduce this.