working with this "jquery-ui-1.8rc3/demos/sortable/default.html"

with
    $('.sortable').sortable({
        containment: 'parent'
    });

move mouse on bottom of item2 and try to drop before item1. its not possible.
sortable.js catch mouse position and change item position only if mouse.Y < (item1.height/2)
with containment: 'parent' this would happen. the same problem is with last item in sortable list, if mouse in item2 in top of item.

sortable should catch the item position relative to start position.
if move up, check item.top position
if move down, check item.bottom position
and not check mouse position.

i hope this help a little.