They work in 1.7.9 for me. It's possibly your internet. If you have a bad connection, skins and heads don't load properly and turn into Steve.
If a player or mob head is not loading try placing it down and unloading the chunk. Go back to chunk and it should be fixed.
It's something with the 1.7.9 update conflicting with the older versions. It's a Minecraft, not server-side bug. Happens on all servers.