ahhh! I think I know what is the issue. Seems like when the pointer object(object being positioned to the mouse) is not set to immovable(in the physics), then the joint position gets altered when trying to drag through an object.. But if I set the pointer to immovable, then the joint stays in correct position even if I drag stuff into an object.
Not sure why the difference occurs depending on that setting, but I might be able to work with this now.
So to recap, yeah- I had been doing it like that example, but I didn't have the pointer set to immovable. Having it movable produces weird results when dragging stuff through immovable objects.