Output of running blocks.fy - I cut out a big part that isn't interesting to the problem (due to output size). See below.

blocks.fy

# Fancy source code for the output below:

i = 0
loop: {  # endless loop, same as: while: { true } do: { ... }
  "-------> " ++ i println
  2 times: {
    "yo" println
  }
  i = i + 1
}

blocks.fy.compiled

# generated bytecode for blocks.fy

Compiling blocks.fy

============= :__script__ ==============
Arguments:   0 required, 0 total
Locals:      1: i
Stack size:  3
Lines to IP: 1: 0..3, 8: 4..13

0000:  meta_push_0                
0001:  set_local                  0    # i
0003:  pop                        
0004:  push_self                  
0005:  create_block               #<Rubinius::CompiledMethod __block__ file=blocks.fy>
0007:  allow_private              
0008:  send_stack                 :"loop:", 1
0011:  pop                        
0012:  push_true                  
0013:  ret                        
----------------------------------------

============== :__block__ ==============
Arguments:   0 required, 0 total
Locals:      0
Stack size:  3
Lines to IP: 3: 0..12, 4: 13..13, 6: 14..15, 7: 16..19, 7: 20..30

0000:  push_literal               "-------> "
0002:  string_dup                 
0003:  push_local_depth           1, 0
0006:  send_stack                 :":++", 1
0009:  send_stack                 :":println", 0
0012:  pop                        
0013:  meta_push_2                
0014:  create_block               #<Rubinius::CompiledMethod __block__ file=blocks.fy>
0016:  send_stack                 :"times:", 1
0019:  pop                        
0020:  push_local_depth           1, 0
0023:  meta_push_1                
0024:  send_stack                 :":+", 1
0027:  set_local_depth            1, 0
0030:  ret                        
----------------------------------------

============== :__block__ ==============
Arguments:   0 required, 0 total
Locals:      0
Stack size:  2
Lines to IP: 5: 0..6

0000:  push_literal               "yo"
0002:  string_dup                 
0003:  send_stack                 :":println", 0
0006:  ret                        
----------------------------------------

blocks.out

-------> 0
yo
yo
-------> 1
yo
yo
-------> 2
yo
yo
-------> 3
yo
yo
-------> 4
yo
yo
-------> 5
yo
yo
-------> 6
yo
yo
-------> 7
yo
yo
-------> 8
yo
yo
-------> 9
yo
yo
-------> 10
yo
yo

[...]

-------> 4445
yo
yo
-------> 4446
yo
yo
-------> 4447
yo
yo
-------> 4448
yo
yo
-------> 4449
yo
yo
-------> 4450     // why is this happening? it should keep on calling the inner block as well ... Maybe due to some kind of inlining?
-------> 4451
-------> 4452
-------> 4453
-------> 4454
-------> 4455
-------> 4456
-------> 4457
-------> 4458
-------> 4459
-------> 4460
-------> 4461
-------> 4462
-------> 4463
-------> 4464
-------> 4465
-------> 4466
-------> 4467
-------> 4468
-------> 4469
-------> 4470
[...]