Originally posted by Hiryukaen:

Yes this is still the case.
This will probably always be the case. It's an intended feature. It's the same decision as why devs have disabled building inside caves/dungeons.

If they allowed you to make a "hobbit hole" you now have a base that is invincible. Same with building into dungeons and caves.

If this were to change, you'd also have to expect mobs to be able to alter terrain (not just destroying breakables like rocks) and ignore the current spawn rules which prevent stuff from spawning near specific player built objects but instead they would spawn because of the player built objects.

Otherwise there is no challenge with minimal investment.

is there "challenge" now? I don't think I've ever had any of my buildings actually destroyed during an invasion.

I suspect that not being able to dig caves is more a coding/engine limitation on the devs part and not an actual gameplay decision.