Confirmed, adding "--forceUpgrade --eraseCache" temporarily to JVM launch arguments for my server completed the upgrade successfully and resolve the rain indoors issue. Take a backup first!
I reproduce this issue as well. Verified working fine in 20w16a, so this is a regression in 20w17a.
I've also encountered this issue. I was able to confirm that removing a sky building resolves the issue. The lag spike happens when crossing the chunk border that results in loading the chunk with the sky building. y=96 does seem to be roughly where the issue begins. But I did not find it was relate to whether the block was "floating" or not.
I was also unable to reproduce the issue when opening the same world in singleplayer, even when using the "open to LAN" option.
Edit: Playing on 20w12a
I have reproduced this issue as well. It is a regression from 20w11a, where this behavior works properly as intended.
I can confirm this issue as well. Moving side-to-side seems to change which text is visible.