Not sure. From what I read in comments on WowHead (after I made my OP), the thing is supposed to spawn at the end of a canal, most often near the palace (which is where I saw it), and it does not move. It has a poor loot table, but it is susceptible to hunter traps and seems to be intended as a prize pet to tame. It supposedly has a great deal of health and is not easy to kill.
So, it may be possible that it's working as intended, or it may be that it spawned too far down the canal. I saw it just about even with the dock with the NPCs that are fishing, including the little boys that talk about a monster that swims in the canals. I never paid much attention to the little boys, but it looks like, once again, what seems like idle chatter is not what it seems.
According to wowhead it is just a unique hunter pet. They probably added the flavor text for when a guard kills it for the lulz.
I type slow. Yeah, it seems that it is just a unique hunter pet. That wasn't flavor text. It was me being
stupid in my bug report. I just figured that they have to hear a lot of garbage from people complaining that the loot that drops from elites is crap.
Sorry for misleading you. Edited, Dec 30th 2012 11:22pm by cynyck