No they're not. They use resource packs to change the way normal blocks and items look without using any mods. They even showed how they do it at minecon, and mojang put a video of it on youtube. And either way it's not just them that deal with it. It's can affect any server. All you need to do to "reproduce" it is play a pvp game on a server. (like I said it's easiest to notice on games with lots of 1v1s, but it can still be hard to notice) I've noticed it can be affected by internet speed, which is a reason that I'm not sure if there's anything that can be done about it. However if there is please look into it. It takes a huge amount of the fun out of games that people and servers like hypixel have worked so hard to create.
It's not modded. Trust me.
good to know. Would it possible for them to stop "catering to 1.7's pvp style"? And if so, would that fix it? (I dont care what gets done as long as it gets fixed. it's ruining the game) Also what do you mean by "their own custom mods"?