Here is the behavior I get on my 1.6+ site.
- When I login to a course as teacher, hidden blocks are invisible
- The blocks become visible when I turn editing on, but their contents are hidden (expand(+) reveals only white space -- see attached screenshot)
- To see the contents, I must unhide the block (open the eye). Before logging out, I must remember to close the eye in order to keep the block invisible to students
- When I login as student, hidden blocks are invisible, regardless of the course setting "Hidden sections."
- When I login as teacher, hidden blocks are visible and their contents are also visible, even when not in editing mode. I can freely collapse (-) and expand (+) the contents.
- When I login as student, hidden blocks are invisible (or possibly grayed out if the course setting "Hidden sections" is set to "Hidden sections are shown in collapsed form")