This is not a case of "the game isn't doing what it's meant to", but rather, "this is an edge case layout that the intended behaviour doesn't handle well".
Digger shadows (and basher, miner and fencer shadows for that matter) only display the edges of the destruction area, not every pixel. (Maybe this should be changed, if feasible. I'll look into it - it should be at least for diggers.)
When this behaviour is taken into account (and when looking very closely, as there will sometimes be 1px visible below the terrain but it's hard to spot), the skill shadow seems to be behaving as it's meant to.