Last night, I went to visit a friend at her skybox home, located just over 3000m up in a private estate region (Mephit 153, 226, 3206). When I arrived, I could not see her, and she could not see me, even though radar showed we were only 3m apart. We also could not see each other's Nearby Chat text, although IMs were not affected. The land's Privacy setting was not enabled, and we were on the same parcel anyway.
I could occasionally see a glimpse of her...it looked as if she'd fly through the skybox from one side to the other, even though she was actually standing still next to me.