Update is out.
Logged into my server and confirmed damage works immediately (I logged in and fell immediately to my death. hooray)
This was problematic since I didn't remember where I was when I last logged out, so I had to go and try to find my stuff. This led me to wandering around and not finding it, so I decided to test out if I could find something if I died again. I punched a sheep and took its wool (it works now - but the graphics of the sheep losing its fur is bugged) and jumped off a high place
I went back to get my wool and I couldn't see it. I did, however, pick it up. Amazingly, this turns out to either be the exact place I died before, because all my other crap re-appeared in my inventory, though none of it was visible in the world.
edit - Leaves still don't de-spawn
Needs more testing, but blocks-reappearing seems to be fixed. I cleared out 50 trees from my farm and didn't get a single block to reappear on me.
Anybody want me to test out anything in particular?
edit 2 - Nevermind. Just died 3 times to invisible monsters. Game is unplayable in current state.