The following bug has been logged online:

Bug reference: 2678
Logged by: Jeff Trout
Email address: threshar@torgo.978.org
PostgreSQL version: 8.1.4
Operating system: OSX 10.4.8 (Also occurs on FC4 w/kernel 2.6.16
Description: Create or replace function with OUT args
Details:

it seems there may be some bug with cache coherency when replacing functions
that use OUT arguments. This happens on Linux (2.6.16 ) - same version of
PG. (I didn't test across the pg restart as others are using that system).
I've created and replaced hundreds of "normal" functions. so I think it has
to do with OUT params.

Here's a transcript:

skittlebrau:/tmp postgres$ cat broken2.sql
create or replace function cachebroken(p_id int, out o_val1 int, out o_val2
int)
as $$
BEGIN

o_val1 := 12;
o_val2 := 45;

END
$$
language 'plpgsql';
skittlebrau:/tmp postgres$ psql indie
Welcome to psql 8.1.4, the PostgreSQL interactive terminal.

Type: \copyright for distribution terms
\h for help with SQL commands
\? for help with psql commands
\g or terminate with semicolon to execute query
\q to quit

indie=# \i broken2.sql
CREATE FUNCTION
indie=# \i broken2.sql
CREATE FUNCTION
indie=# \i broken2.sql
CREATE FUNCTION
indie=# \i broken2.sql
CREATE FUNCTION
indie=# \q
skittlebrau:/tmp postgres$ psql indie
Welcome to psql 8.1.4, the PostgreSQL interactive terminal.

Type: \copyright for distribution terms
\h for help with SQL commands
\? for help with psql commands
\g or terminate with semicolon to execute query
\q to quit

indie=# \i broken2.sql
psql:broken2.sql:10: ERROR: missing cache data for cache id 27
indie=# \i broken2.sql
psql:broken2.sql:10: ERROR: missing cache data for cache id 27
indie=# \q
skittlebrau:/tmp postgres$ pg_ctl -D /usr/local/pgsql/data/ -m fast restart
waiting for postmaster to shut down....LOG: logger shutting down
done
postmaster stopped
postmaster starting
skittlebrau:/tmp postgres$ psql indie
Welcome to psql 8.1.4, the PostgreSQL interactive terminal.

Type: \copyright for distribution terms
\h for help with SQL commands
\? for help with psql commands
\g or terminate with semicolon to execute query
\q to quit

indie=# \i broken2.sql
psql:broken2.sql:10: ERROR: missing cache data for cache id 27
indie=# drop function cachebroken (int);
DROP FUNCTION
indie=# \i broken2.sql
CREATE FUNCTION
indie=# \q

Occurs on: indie=# select version();
version

----------------------------------------------------------------------------
------------------------------------------------------------------
PostgreSQL 8.1.4 on powerpc-apple-darwin8.8.0, compiled by GCC
powerpc-apple-darwin8-gcc-4.0.0 (GCC) 4.0.0 (Apple Computer, Inc. build
5026)
(1 row)

indie=# select version();
version

----------------------------------------------------------------------------
-----------------------
PostgreSQL 8.1.4 on i686-pc-linux-gnu, compiled by GCC gcc (GCC) 4.0.1
20050727 (Red Hat 4.0.1-5)
(1 row)

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