merged_tree: in diff iterator, maintain legacy/modern variant in subtree

As #2165 showed, when diffing two `MergedTree::Legacy` variants (or
one of each variant) and re recurse into a subtree, we need to treat
that as a legacy tree too, so we expand `TreeValue::Conflict`s found
in the diff.

lib/src/merged_tree.rs

@@ -739,10 +739,12 @@ impl<'matcher> TreeDiffIterator<'matcher> {
         } else {
             Merge::resolved(Tree::null(tree.store().clone(), dir.clone()))
         };
-        // We return a `MergedTree::Merge` variant here even if `self` is a
-        // `MergedTree::Legacy`. That's fine since we don't expose the
-        // `MergedTree` to the caller.
-        MergedTree::Merge(trees)
+        // Maintain the type of tree, so we resolve `TreeValue::Conflict` as necessary
+        // in the subtree
+        match tree {
+            MergedTree::Legacy(_) => MergedTree::Legacy(trees.into_resolved().unwrap()),
+            MergedTree::Merge(_) => MergedTree::Merge(trees),
+        }
     }
 }
 

lib/tests/test_working_copy.rs

@@ -271,8 +271,6 @@ fn test_checkout_file_transitions(use_git: bool) {
 
 // Test case for issue #2165
 #[test]
-// TODO(#2165): Shouldn't actually panic
-#[should_panic]
 fn test_conflict_subdirectory() {
     let settings = testutils::user_settings();
     let mut test_workspace = TestWorkspace::init(&settings, true);