I think what's going on there is that the composite component itself is a NamingContainer. Inside this naming container, you are reusing the ID, so both the ez:custom and h:panelGroup have the ID "foo." Since ez:custom is a NamingContainer, it's clientId, "foo," is prepended to the panelGroup's, making foo:foo. If the form weren't set to prependId="false", ez:custom would be "form:foo" and the panelGroup would be "form:foo:foo."
Hope that helps.
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