I'm building with --with-fuse2. Reverting this commit does not break building with fuse 2, but does break building with fuse 3.
The actual folder:

Bind mounted folder:

Apps/folders with broken icons has custom icon set (Get Info on the app, and then drag an icns file onto the icon at the top), the result is the following file in the app bundle:

Breaking commit:
3293dc9, specifically the changes in bindfs.c.