The functions are working, but block itself seems to cause such... thing. Is it specifically my issue, or actual bug?

Not really.
It seems that there is either some conflict or graphical bug I'm not aware of.

Possibly, could be tied to the Streams mod, but I'm not sure.

I can't reproduce it. Are you using OptiFine? The bubble column block explicitly extends the water block to make sure it renders the same way.

Did further investigation. It is not Streams mod.

Also, when in the water, it looks normal, as in, it does not create anything inordinary. It is specifically the top layer of the water texture which is missing, else seems to be there.
Will check a few options.

So the issue is the FluidLogged mod. It also seems to change the water color a bit.
https://www.curseforge.com/minecraft/mc-mods/fluidlogged-api

This is fixed in 1.7.2.