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WHen the prompt compression runs, it seems to replace diffs with something like:
"Compressed diff with 1 SEARCH/REPLACE blocks"
This is terrible, because the AI doesn't know this is a compressed diff, so instead it thinks this is actually the file contents. Then later it tries to perform a file edit based on thinking that was the file contents:
It needs to replace it with something the AI can understand... more like:
<FileRead NOTE="These file contents have been removed from the prompt. If you need the file please re-read it"/>