Breaking package:watcher change for behavior with symlinks

[davidmorgan]

Currently the behavior with symlinks is undefined + untested.

Add test coverage, decide the new behavior, do a breaking release.

As part of this change, fix behavior when there are cyclic symlinks #1728

[davidmorgan]

I started by looking at the file watcher. It turns out there is already some awkward/inconsistent behavior before looking at symlinks, so I will tackle that first.