It's not much of a "phenomenon", it's the way things work normally. The way Linux and most other operating systems are designed, there is no problem in being able to access the entire file system: there are only few files with private data, and those are restricted by default. The rest - well, I can't see much harm in being able to browse /lib or /usr... Besides, you cannot run any programs if you are denied access to those locations.
(As for other users' files - again, can be locked with a
In some FTP servers, you have the option to enable chroot, which essentialy changes the / to represent the user's home directory. It's possible to do this with SFTP as well, although I'm not sure if Dropbear allows that (OpenSSH does). But when it comes to restricting interactive shell access to $HOME, it's... Well, I've seen it done on OpenBSD, but it caused a whole lot of problems.