So after reviewing the code it seems the problem is related to water flow direction/detection. By default water in minetest doesn't push stuff around, but there is a mod to change that behavior. I originally didn't have it installed and thought maybe that was the problem, but I installed it and nothing seemed to change. I found that if I force what I expect to be the correct "direction" for the water to flow in the mod I can see the expected output in game. Now it still seems to rarely push the items downstream even though it seems to work with anything I drop into the water. It's all a bit odd.