If a registered user is blocked, it blocks their name and IP.
Why block the IP? What if it's from a library or school? This sounds like a too harsh response. Could you not make new account user creation a a bit more of an effort/time (at least from the open proxies) to discourage abuse?
It's part of the Mediawiki software, which Wikipedia runs. It causes some issues sometimes, for example with people who are blocked for using an inappropriate user name. The intent is to keep the user from logging out to evade the block.