Could not find a particular report that verifies why they did this, although I can imagine it might have been an IE6 fix for large images (so max-width wouldn't work) that they neglected to make IE6-specific.
In any case, the fact that the pop-up is a child of the post means that (although unlikely at this point) it is possible for it to inherit styles from the post itself. For this reason, and now apparently for the overflow issue, the pop-up needs to become a direct child of the body tag.
This was something we were holding off on until VaultWiki 4, but now looks like it needs to be moved up.