When you use mouselook in 3rd person follow and switch to autorun before the message pops up, then you can navigate the world perfectly well without connection to the server. In fact, since the server doesn't respond, you don't lose stamina or HP, so you can pretty much do whatever you want.
Still, the server is down and rebooting as has been said. Unplugging your network connection will give you the very same effect.
I do agree that it would be nice to just have the client wait for the server coming back up and then seamlessly reconnect and relogin. Basically go through the same sequence as when manually logging in, but without login screen, char selection, reloading the maps and setting up the GUI. This would mean that you get put whereever the server last saved you, and restored to that state, but that'd be less inconvenient than an entire quit-relog-reload sequence.
While this feature would, due to the great instability in the current state of development, be most useful, it is for the same reason - early development stage - that it probably won't get implemented yet. That's a feature for more complete games, and though it would of course work, I suppose there are more important issues to address.
Regarding the server conspiracy: it can happen that a connection loses so many packets, or that the server lags so badly, that the connection gets dropped despite the server being up. This happened a lot some months ago, but ATM the server's crashyness is the main source of loss of connections. Of course, a relog feature would help there as well, but see above.