When diff encounters an untracked directory, there was a shortcut
that it took which is not compatible with core git.  This makes
the default behavior no longer take that shortcut and instead look
inside the untracked directory to see if there are any untracked
files within it.  If there are not, then the directory is treated
as an ignore directory instead of an untracked directory.  This
has implications for the git_status APIs.