Basically what is happening here is that the game can't figure out how to make Mario's crawl animation in the space, so it warps Mario's model upwards and he crawls up there. Note that Mario's hitbox is still in the place it should be, which is why the Chuckya can't pick Mario up even when passing through his model

This can occur in Vanilla by pushing a box in WDW near the top of the stage under a ledge and then crawling around next to it. Mario's model will seem to disappear, but it is actually warped inside the ledge!