What I expected to happen was...
Observers should still be able to detect updates even when they cross chunk borders

What actually happened was...

Observer didn't detect any block updates at all after crossing a sub-chunk border

Impact
This breaks every vertical flying machine and is not intended behaviour

Additional information
Replacing the observers doesn't work, because the observers still don't detect anything. The only way to fix it is by pushing the observer again. I was able to reproduce this fairly consistently with a 2 way flying machine.