The item sorting isn't really a feature we intended to put into place, it's actually part of a range of fixes in a custom build we use to avoid Minecraft lag. In this case the item grouping is there to reduce the amount of entity's scattered on the ground, the more items on the floor the more lag they are likely to cause in the area. Having the items grouped when dropped causes much less lag as all the items are floating in one spot. This explains why items may bob up and down when cutting wood and such it's trying to simply group them as the new entity is falling to avoid a huge mess on the floor. Once you have finished woodcutting all the entity's that were bobbing up and down should fall into your inventory in one big stack.

In the past before this was put into place some mischievous players would often buy 1000's upon 1000's of blocks and scatter them in one area to cause mass lag on the server, this obviously caused problems for everyone and was highly annoying to the rest of the people playing. Hopefully you understand why this is put into place and you'll probably see a lot of other servers using similar methods to avoid this type of lag, so there  isn't really an option to remove or keep the item stacking it's there for a specific reason and not as a feature.

Also!

Often you may see grouping off/on during stages of new Minecraft builds this is generally because our custom build isn't quite up to date with Bukkit.

*Poll locked, won't change the outcome on the server. I apologize if you dislike it.*