This is perhaps more a real annoyance than a bug and I'm surprised I am the first person I see mention it, anywhere I have seen. There have been other complaints about retrieving arrows and picking up loot (Daily radar's review, among others, appropriately calls it a "pixel hunt"), aside from trying to just walk over it to auto-pickup (another nice feature, though a better one would be a "pick up all loot" button).The good part is, if something is out of your reach and you click on it to pick it up, you automatically walk over and pick it up - great ... unless it it somewhere you can't walk, or if it happens to be not directly in front of you (thus the "dance").
Ok, I grant you there has to be some workable algorithm to figure out how to get from where I am to a point I can pick up said item and it may not always take the most direct route - fine.
But, when I can see this arrow or bag of money (hopefully this won't somehow apply to critical game path items) that seems in reach or inches beyond, I don't want to have the CPU run me in endless circles trying to get it.
I was in Toad village yesterday and fired a slew of arrows into some toad guards in the end of a cavern. The entrance was somehow blocked (apparently by the little trough of plants I could not move), so I could not enter to retrieve my arrows or the weapons, armor, gold, ... that the guards had dropped.
I have heard people talk about jumping in the game (maybe I could have jumped over the trough) but couldn't find how in the manual or on the back, which has the keyboard layout.
Tools for your Wizardry(r) toolkit
""The entrance was somehow blocked (apparently by the little trough of plants I could not move), so I could not enter to retrieve my arrows or the weapons, armor, gold, ... that the guards had dropped.""Prior to killing all three Toads in that same room I was able to get around them and get to the trough and the bucket that is past the plants. After killing them, I was blocked about one third of the way in the room equal to the trough. Did you find a way around this issue? Or did you just drop it? I don't think that there is any reason to go in the room anyway. Could be wrong.
I also removed the bucket from the room and got it stuck in mid air down the tunnel at the next ladder. Can't get aroud that either save for going up a ladder and then down another. I went back there yesterday and the bucket is still there. Not that time would cure the issue but to see is the bug was still ....well.. bugging. It was.
The PUTL dance is driving me nuts!! 
(that and not having learned how to jump yet - the zero key on the numpad)I was just on a killing/exploring spree anyway, geting a feel for the game at that point, so I didn't dwell on it too long.
One other anomaly (sp?) I found, was an invisible railing around one section of the toad hut. The railings prevent you from falling off - nice. But there was one complete section where I *saw* no railing, yet couldn't fall off there either 
Near the entrance (by the ladder) there are a couple spots where there is no railing and I could dfall off just fine there 
Tools for your Wizardry(r) toolkit