is this below the new limit or from 0 to -64?
You should not be able to access these worlds anyway and this is why.
this sometimes happens but could very well be even more bugged because of the new y levels
For one, this is how it is and mojang will not disable it in this version unless you want the world to corrupt and lag out. You will need to wait until they implement a fix for terrain generation across versions. Nobody knows how long it will take.
if you would like to play on the latest 1.17 snapshot with your worlds, use 21w05a. This is NOT A BUG and is an intended feature. You will need to wait until Mojang releases a world fix that will support the new building limits and generation. Until then, 21w06a is meant to be an independent version and is not compatible with any other versions.
setblock works for me, but i will admit I have not tried placing a block in the new areas yet
A little bit, it only happens at some angles though which is confusing to me
Can confirm in 20w46a. This is caused from a terrain generation update in the combat update (1.9). I tested this all the way back to 1.8.9 which is the version where it stopped working. This means that they must have changed somthing in the terrain generation in 1.9 which caused water. Most likely this is a lucky terrain generation seed but Mojang might just have not noticed the bug until now.
Mojang probably just needs to update the terrain generation to make it less performance impacting. I wouldn't say this is a bug just an expected feature in snapshots this big and something that would be nice to fix.