Strange behavior of files.exclude in workspace with nested folders

[rubensa]

Related Issues:
#116418
#114869
#114447
#102147
#98205
#96782
#95056
#45470
#45399

• VS Code Version: 1.54.1
• OS Version: Linux x64 5.8.0-44-generic

Steps to Reproduce:

1. Create a root folder (files-exclude-sample)
2. Inside that folder create two nested folders (child1, child2)
3. In root folder (files-exclude-sample), create a workspace definition file (files-exclude-sample.code-workspace)

{
  "folders": [
    {
      "path": "."
    },
    {
      "path": "child1"
    },
    {
      "path": "child2"
    }
  ]
}

4. In root folder (files-exclude-sample), create a .vscode folder
5. Inside .vscode folder create a settings.json file

{
  // Configure glob patterns for excluding files and folders.
  "files.exclude": {
    "child1": true,
    "child2": true
  }
}

6. Alternatively to previous steps, just clone this GitHub repo: https://github.com/rubensa/files-exclude-sample
7. In VSCode, open the workspace (files-exclude-sample.code-workspace)
8. Everything looks ok. You have tree root folders (files-exclude-sample, child1 and child2)
   
9. If you expand all three folder you can see something like
   
10. As specified in root folder .vscode/settings.json, child1 and child2 are excluded
11. Open file.txt from child1 folder
12. child1 folder is collapsed (not removed from explorer tree) and it appears inside root folder (files-exclude-sample) folder
    
13. The expected behavior is that child1 is not collapsed and it does not appear inside root folder

Does this issue occur when all extensions are disabled?: Yes

[bpasero]

@TylerLeonhardt the owner of the file explorer is @isidorn

[isidorn]

I acknowledge this issue. MR workspace support with when one root folder is a subfolder of another root folder has some issues.
If somebody is passionate about fixing this let me know and I can provide pointers

[jeanp413]

Created #118777 fixing this