Actually, I've just been on a little Saturday morning geek online conference and the young 14 year wunderkid has worked out how to just move blocks up 1 (even though they've never seen the Snap! code before and are not a JavaScript programmer!)
So I'm going to modify @dardoro code to add in the ability to just move a block up or down
Might need to grab another cup of coffee
Would still like to know why manipulating the block definitions in the xml doesn't work though
There is a long-outstanding Feature Request to enable users to reorder custom blocks, it was even supported by the High Priest of Snap! himself. The current vote count is 12 (after my endorsement), which already makes it one if the most widely supported FR’s of all (the top outstanding request has received 20 votes, that can’t be too hard to surpass). So, everyone who agrees that being enabled to reorder custom blocks (without hacking) is a good idea: you now know where to cast your vote .
Cosmetic changes (like sorting of variables/blocks) have never made it to the top of the list in the years I've been using Snap!
And I'll wager a whole £5 that they never will