When placing water on top of a Block of Soap, the Block of Soap becomes Wet Soap with meta 10, leading to a null item texture.

It also appears to become Wet Soap with meta 10 if you place down a normal wet soap block.

Why is it that wet soap drops regular soap anyways?

because regular soap blocks with water running over them become wet soap blocks, hence they must drop regular soap blocks. it's an alternative to ice blocks for water channel things and can be disabled in the btwtweak module.