That's exactly the same behaviour as the NES, only extrapolated to multiple BG layers and more than two levels of sprite priority. On the NES, IIRC either Super Mario Bros or SMB3 (or both) relies on it to produce the effect of a powerup item rising out of a block.
on a similar note, can somebody on good terms with the regen guys get the proper megadrive sprite masking algorithm? the one I have works with many of the difficult cases (pirates gold, galaxy force 2 etc.), but falls apart for some simple ones like the SOR status bar. None of the documentation I have seems accurate and able to handle all cases.