Is this level of publication politics normal in academia? I'm currently finishing up a master's thesis in computer science/applied mathematics and have for the last few years been sure of my goals: to pursue a PhD.

The decision to do a PhD or not should largely be a function of your research potential. There's a lot of questions of the "am I good enough for a PhD" sort, but my concerns are of the opposite flavor. I'm fairly convinced that I would make an able researcher, based on discussions with several members of faculty and my output record thus far.

Lately, I've gotten a taste of academia's backside. There's the general record padding done by a fraction of faculty: publishing/coauthoring stuff they KNOW have no novel content, blatant reciprocal out-of-context citations and stuff like that. This strategizing almost seems to spill over into the problem selection process as well - a good problem is one that has potential for publication quantity first and foremost.

Not all professors do it, so I guess I could live with it. What's worse is the attitude from what is supposed to be peers. PhD students who I've proposed ideas to pitching them as their own to their supervisors. Others acting threatened and stand-offish, leading to awkward social situations. There's much less free exchange of ideas and much more politics than I thought.

It seems like such a cynical culture at times. Most of the professors are great, but I don't know if I'd want to enter academia if this is a typical situation between peers. So my question is: is this really typical? Am I being unreasonable in expecting less politics between peers? Is it possible to work in this sort of atmosphere without becoming part of it?
When it comes to a workplace, politics is inevitable. There are always bias in opinions, bureaucratic criteria that are bendable to some, possible hierarchical influence. These are all common in almost any workplace (at least AFAIK). Academia is no different in this case. There are people who prefer quantity over quality and some others the other way around.

At times, the level at which you could be a part of this depends. You may be able to avoid in being a part of this to some extent, but you may have to witness this nonetheless.