Happened to me. I was with a buddy, he could not see me. We both relogged to the same server. I could see his actions fine, but to him I appeared to be standing still when I was actually moving.

I was able to drop items and they appeared where they should, relative to my perception.

I've heard this is actually a very old bug, and that one can run around and shooting while invisible with it, and basically can't die unless someone finds their most recent login point and kills their still-standing avatar. It seems to me that the character controller basically forgets your body and leaves it behind.