Yes, sews just fine and goes over seams. I have done as you suggested in the past raising the needle just a little, and then raise the foot, and that does give me some clearance to turn the work. I am always a little dubious of doing this as I must have lifted it to far in the past and ended up with a rats nest underneath as it messed up the lower stitch - I must have lifted to far and pulled to much on the loop.
Thanks for confirming that this is normal, not an adjustment, and that the inside foot is always down - even when manually trying to raise it.
Neil