Yes, I've seen this happen before too. When we were doing H Festergut the other night, our Disc Priest threw it up on the raid and in a flash it was gone. Half the people stopped doing what they were doing just because they had no idea what had happened.

It disappears after it has absorbed its maximum amount of damage. In a situation like festergut where a ton of damage goes out on everyone in the raid, the barrier simply did what it was designed to do and is now gone. It will take some getting used to, but I've had a lot of fun with it even in just running heroics with my newly 80 priest. Basically buys me a free nap during Loken's Nova spell in HoL.

Don't blink or you'll miss PW:barrier. I'm the priest casting it, and I can barely see it--it's gone that quick. I have been casting it primarily on melee in 25 man groups, so it is just getting absorbed super fast. Which also means that it is being used, but at the same time, if it is used that fast I am sure the main thing it is doing is causing a lot of overhealing in the 2 seconds it is up from all the HOTs and AOE effects of other healers. It is not up long enough for you to feel like it is actually *saving* anyone.
I think it was a lot more useful in PVP, for example cast over two or three people standing on the flag in Arathi Basin. I also think it will be more effective in a 5-10 man group.

The amount of damage absorbed by PW: Barrier is affected by mastery, a stat we don't have full access to yet.

It may be underwhelming now, but I'm betting it'll hold up just fine (or better, anyway) come level 85.

As of right now the barrier is a lot more effective to use on one or two targets (namely the main tank).

On some fights you can just throw the barrier up near the MT and they can use it whenever needed.

As some have pointed out, it will get better probably. And right now, it may not be great in Naxx, but it's a real pain in PvP (speaking as a non-priest who spends way too much time lately trying to eat through those darn things). A priest in a bubble designed to take raid damage for multiple people? Yeah, that's hard to kill. :)