Steps to reproduce two-repos-in-one-folder issues.

0. Rename project/.git1 and project-dev/.git1 to project/.git and project-dev/.git respectively because git is not able to add .git to staged changes.
1. Open project folder in Code and open SCM view. You should see 1 file is untracked.
2. Open file 2 from project_dev folder. On SCM sideview nothing is changed.
3. Open .git_dev/config file and remove line with worktree=../. At the source control view new provider called project-dev should appear with file 2 as untracked.
4. Put line with worktree back. File 1 should appear in project-dev instead of 1

First issue:

Try to click on 1 at project-dev section. An error occures:

Unable to open '1': Unable to read file (Error: File not found (/home/user/workspace/two-repos/project-dev/1)).

Expected: /home/user/workspace/two-repos/project/1 is opened.

Second issue:

Try to reload VS Code and go to Source Control sideview. Note: files 1 and 2 should be opened in editors.

Expected: project and project-dev should be listed among Source Control Providers. Instead only project is presented. If you remove line about worktree in project/.git_dev/config then project_dev would be shown again and you have to add it back if you want to project-dev track the right worktree.