I went out and try the altitude hold mode with the LV-EZ0 ultrasonic sensor over a grass field. It worked like a dream up to about 3-4 meters, maybe some hiccups here and there, but very smooth overall.
However it happened to me three times that the copter rocketed into the sky, forcing me back into stabilize mode. This seemed to happen at about 4 meters, though don't take the number too strictly.
I think that the barometer might not be reliable, and, as it switches from ultrasonic to barometer, it flies off because its getting the wrong readings. How could I verify that this is indeed the case (and not something else) and how can I fix this?
Edit 1: The barometer is covered in foam.