Test enviroment:
apache 1.3.27, PHP 4.3.1 built as apache module

The following two programs demonstrates the difference:

<?
$foo = create_function('$s', 'return strtoupper($s);');
ob_start($foo);

echo $foo("Bar\n");
echo "Hello, the World!";

?>

Our expectation is that all characters was upper, 
Unfortunately, "Helo, the World!" was not changed.
It seems that the $foo function had not been called.

I have ever running with php 4.2.1, It works well.

When I change a little about the source, it works well, too.
<?
function foo ($s) {
    return strtoupper($s);
}

$foo = "foo";
ob_start($foo);

echo $foo("Bar\n");
echo "Hello, the World!";
?>