[1.7] Dragon is ignoring ground when flying

Verification builds:

1.7.0.3_beta-22 Release 1130546

Summary:
Dragon is ignoring ground when flying

Impact:
Unable to fight the dragons correctly in Adventurer's Dream

Repro Steps:

1. Download the Adventure's Dream Mashup pack from the Store
2. Create a new world with the pack equipped and have Cheats enabled
3. Teleport to 2 80 0
4. Press the button
5. Observe the dragon flying under the ground. 
6. Repeat in a 1.6 build and observe the dragons flying above the ground

Observed Results: 
Dragon is flying below the ground when summoned.

Expected Results: 
Dragon is flying above the ground when summoned.

Screenshots/Videos attached: 
Yes

Regression Build:
1126522 Release 1.6.0.15_R6_RC4