Requested priority: (High)
Products/sites affected: (web parts property pane)
The drop down is used to open as "drop-up" when the DropDown is rendered at the bottom of page or its container.
(from: https://officedevcentersite-devx.azurewebsites.net/fabric#/components/dropdown)

The drop down opened at bottom with scroll bar, looks bad when there is not enough space after drop down control. (See CodePen at the bottom to see the case where it looks bad)
(from: https://dev.office.com/fabric#/components/dropdown)

The drop down opened at top.
https://codepen.io/anon/pen/OjQyzp
Scroll to bottom and open the drop down.
Note: I assume codepen should be using the latest version.
This was an intentional change to make dropdowns actually dropdown (they were popping out to the side previously). I would support maybe popping up, but at some point the options will need to scroll to fit onto the page, so it's not 100% cut and dry.
I also have the same issue. The previous way did show a more convenient list height, while now you are pretty much limited to the remaining height between your dropdown and the bottom of the screen. Changing it to go on top would be a wise choice imo.
I think this is still should be marked as a bug. I get that showing the drop down on top can be an arguable decision. Though, I personally don't see any issues popping it on top. Moreover it's a de facto standard to show the dropdown on top if there's not enough space down:
<select> HTML elementAnd to make it even worse look at this screenshot from official Office Fabric samples:

It's kind of OK. I have a scroller, I can see only 2 items out of 20, it's not convinient, but at least usable.
But if you have slightly less space available down:

What is that? I can't see nothing, I can't scroll. All I see is a weird not usable artifact.
And to reproduce it you simple need to scroll your page to the the list at the bottom.
+1 to @mshmelev 's example of the dropdown at the bottom of a page opening as an unusable artifact.
I have small real estate to work with in an iframe and I have a combobox at the bottom. The control is completely unusable because opening the dropdown gets that scrunched callout. It only opens upward once you've obscured part of the bottom of the combobox with the bottom of the page/iframe.
Fixed by #3719
Most helpful comment
I think this is still should be marked as a bug. I get that showing the drop down on top can be an arguable decision. Though, I personally don't see any issues popping it on top. Moreover it's a de facto standard to show the dropdown on top if there's not enough space down:
<select>HTML elementAnd to make it even worse look at this screenshot from official Office Fabric samples:
It's kind of OK. I have a scroller, I can see only 2 items out of 20, it's not convinient, but at least usable.
But if you have slightly less space available down:
What is that? I can't see nothing, I can't scroll. All I see is a weird not usable artifact.
And to reproduce it you simple need to scroll your page to the the list at the bottom.