I think this is not an important issue to get upset (rant) about. But in the spirit of observing the letter of the rule:
Interestingly, I see nothing in 1-2-3 or 2-23 that specifies the on-deck circle should be on the same side of the diamond as a team's dugout. Secondly, while there is a 37 foot specification, it only applies if space permits. Otherwise, the OD circle should be a safe distance away. So, I'm not convinced that the letter of the rule is being breeched. Not that I think the letter of the rule is very important here.
Practically, I am quite sure that a player positioned behind a batter is less likely to be struck by a batted ball than if he were on the front side of the batter, even if he is only a dozen feet behind (which would be inside the cutout, by the way. Are you sure they are that close?) If the position behind the batter is nearer the opposing dugout, there is a higher likelihood of confrontation, and I suppose that's why the local rule keeps the player close to home plate.
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