Reproduced in Vanilla using a spawnegg and the /tp command.
Works even for deeper blocks ~10 blocks below the surface.
Not quite a dupe, since the screenshot additionally shows a diffrent bobber behaviour. Especially when cast down into the water, the bobber will float up in the air..
Additionally note that you need to mine the bottom face of the block and the particles only stay black for a short amount of time.
(There seems to be no difference if there is a block above, or just air.) Also only affects opaque blocks.
Still applies to 13w17a.
Tried to look for it, but "redstoneblock" didn't yield any compareable results.
Still valid for 13w16a. Caleb F's solution might be the most efficient, since squids won't be able to jump out of water on their own anyway (and squidfarms where they need to drop out of water would still work) But just like the hostile mob AI was updated there might be an update for neutral/friendly mob AI sometime so they actively avoid dangers (except some other influence, like hunting/following the player has higher priority)
Found some time to test it again, but wouldn't happen on a local hosted game or in singleplayer, so another glitch that might be caused by bukkit or serverlag, sorry to waste your time D:
Jake, does the server have any plugins?
Tested on own pure vanilla server and seems it is not affected (at least the one I run on my own machine.)
As addition:
The server that is affected runs various plugins like mcmmo and timber which might eventually be the cause.
I'll investigate a bit more.
Got to add that the carrots/potatoes will be consumed, but don't refill your hunger.
Yes, as of 1.8.1 this bug still exists.