It sounds like a bug, but I think there's something wrong somewhere else -
A developer would have had to have specifically sat down and written code to make it behave like that, and I can't think that any developer would have. Bugs are usually there because something is wrong or has been missed, you'd actually have to write code to make stuff behave like this.
The other thing it could be is permissions - if you didn't have the permission to edit the target story, then you would not be offered it as a potential parent issue. Does your workflow restrict editing while things are in parts of their lifecycle?
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