Redstone going down the side of an observer does not continue its signal strength, it just stops.

I would expect the entire Redstone line in the attached image to be lit up but it only lights up the Redstone on top.

This bug can be reproduced by placing Redstone on top and beside an observer facing downwards, then activating the observer or the top Redstone line. The Redstone signal will not continue down the side face of the observer.