From version 1.4 things in the water have changed their logic and now items are displayed incorrectly.


Water physics in general haven't been implemented yet, so this is just an additional pain in the ass. Items have always been problematic.
You can work around this for now by setting the DATA_FLAG_NO_AI generic flag on item entities to disable the client-sided floating.
Are you planning on adding this flag as a "hack"?
I haven't decided yet. The problem with setting this flag is that it makes item movement stuttery (no interpolation), so that's not good for appearance's sake. The correct fix is to implement proper water physics, but that's going to have to wait for now.
I found a hack for this which can be used to prevent the floating without the jittering. Fix coming soon.
Most helpful comment
Water physics in general haven't been implemented yet, so this is just an additional pain in the ass. Items have always been problematic.
You can work around this for now by setting the
DATA_FLAG_NO_AIgeneric flag on item entities to disable the client-sided floating.