I recently played a pretty fun game against a player named Zuzu. I was a bit concerned when I saw that he was on vacation mode, but the game actually finished quite quickly, with him still making turns despite being on vacation mode. How would that work? I thought that playing turns while on vacation mode automatically ended the vacation. Was there an update in which games in progress or ladder games don't affect vacation? I have certainly seen vacation modes end because a player was still active.

Well I just got out of vacations.
The way it worked for me I was still in "vacation mode" for an hour after to give me time to take my turns, so you probably just caught him after he went out of vacation mode.

It`s pretty simple:

Automatic Disable

If you play in a game, your vacation will automatically be scheduled to turn off in one hour. So make sure turning on vacation mode is the last thing you do before you leave. When returning from vacations, make sure you take all of your turns where you're over the boot time within one hour of each other.
You must leave all ladders before turning on vacation mode. If you re-join the ladder, your vacation will automatically scheduled to turn off in one hour, just as if you played in a game.

http://wiki.warlight.net/index.php/Vacations

Did you check his profile? The last time I went on vacation I had that little green V stay alongside my screenname for a few hours after my vacation had ended but my profile page no longer displayed the vacation message (so it might be a little bug).