On Mushroom biomes, hostile mobs are spawning in caves that are directly below the surface of the biome. The water turns from the Mushroom biome color to blue, even before reaching Y 0 or below. Azalea Tree's are also spawning on the island as well.
Here's the seed number: -585668801
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is duplicated by 1
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This is not a bug. Lush caves are a different biome and do not have the same spawn rules as mushroom islands.