This jsFiddle demonstrates the issue. Just scroll down in the result pane by at least the height of the box (that's not precisely tested), then drag it up. It actually works correctly if you don't have enough room above to scroll, and if you don't let go of the mouse, you can usually drag it back onto the main div. At that point, the cursor is no longer in the same position relative to the draggable as it was when you clicked.

I've googled and haven't seen anything that solidly indicates this is a known bug. It seems to still trigger on the last versions of jquery[ui] on jsFiddle.

Is there a good solution/workaround for this issue? Should I report it as a bug?