what happens when the front sight on an AR is higher than the scope ?

it will "ghost out" if you have a scope with any significant magnification at all on it. If you are running a red-dot you will obviously see it, but just co-witness with your irons and you are good to go.
 
Should the scope be above the front sight post to avoid a big blobby front sight post obscuring your vision?

Or you can take it off entirely and put on a low profile gas block. Depending on your skill level you may want a gunsmith to do this, however. You will also want to install a set of backup sights if you are using a red dot. That's the route I took.
 
At 1X (on a standard mount) it will be obvious there is a front sight. As the magnification (around 4X) increases the front sight will blur out.
 
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