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The VCS overlay icons all a lot of visual complexity / noise. MD should hide those that are superfluous, i.e. identical to the parent.
I started working on this and then took a break for lunch and thought about the logistics a bit more.
I think it only makes sense to hide the 'Versioned' overlays. For example if I have a folder which is unversioned, having all the files also marked as unversioned (with the question mark) is good. I like this, it makes it perfectly clear that the directory *and* all the contents are unversioned. In short what I like is that the standard is that if a project is under version control, all files/folders with it should (by default) be assumed to be under version control. If they are not, an icon will appear to indicate this.
The complexity then comes in when you have a solution/workspace (which may or may not be under version control) containing more solutions (each of which may or may not be under version control) which in turn contain more solutions/projects which may or may not be under version control. In this scenario i think it'd be more confusing to have the 'superfluous' overlay icons removed as it'd be hard to tell whether something is under version control or not unless you also checked the parent, or the parent of that.
As such, i think removing the 'versioned' overlays from the folders like I've done is sufficient and in the most common circumstances the user will only have a single solution with a handful of projects.