Does this photodiode circuit work?
According to this, the photodiode does indeed produce a current even when there is zero volts across it; it's the short circuit current.  Note that the reference direction of \$I_S\$ in the question's diagram is opposite that of the \$I_{SC}\$ of the diode so the output voltage is:

\$V_{OUT} = - I_S \cdot R_F = I_{SC} \cdot R_F\$ 



I found the above here.

A reasonable question to ask is how can a current be produced with zero voltage?  

Remember that there's an internal E field through the depletion region even when the diode terminals are shorted together. Briefly, light generated EHPs in the vicinity of the depletion region are separated by the E field resulting in charge accumulating in the P and N sides (that's how \$V_{OC}\$ is developed). A short circuit allows a current to restore charge balance.