\documentstyle[11pt,code]{article}
\begin{document}

\section{Section 1}

Here is a non-first paragraph of code.

\begin{code}
f x y = x
g x y = x
f1 x y = x
g1 x y = x\end{code}

Here is the same thing with some index entries immediately following.

\begin{code}
f x y = x
g x y = x
f1 x y = x
g1 x y = x\end{code}
\index{foo}%
\index{bar}%
\index{baz}

{\em The bug is the overly-big space above this line.}

\section{Section 2}

Now we do the same thing, but with `quotation' (another `list'
environment), not `code'.

\begin{quotation}
f x y = x
g x y = x
f1 x y = x
g1 x y = x\end{quotation}

Here is the same thing with some index entries immediately following.

\begin{quotation}
f x y = x
g x y = x
f1 x y = x
g1 x y = x\end{quotation}
\index{foo}%
\index{bar}%
\index{baz}

And some final text for this section.
\end{document}