Issue Type: Bug

When opening a typescript a(n empty) folder I get the error message:

Unable to watch for file changes in this large workspace folder. Please follow the instructions link to resolve this issue.

But it is not large at all. In fact it is enough to have only one not a single file in the "project" folder!

mkdir empty

Now opening this empty folder in VSCode leeds to the mentioned error message.

Before you ask:

$ cat /proc/sys/fs/inotify/max_user_watches
65536

and it does not help if set to the 512K maximum.

Findings:

• The FS watcher seems to look for a .git folder - that does not exist in the empty "project".
• The watcher obviously climbs up the FS hierarchy towards the root folder until it finds a .git folder.
• My $HOME is managed by git (for dotfiles mainly), so I have a .git directory in it.
• Workaround 1: When I temporarily remove ~/.git the error does not appear when opening the empty folder w/ VSCode.
• Workaround 2: git init in the empty folder.

Looks like the watcher is climbing up the folder structure until it finds a .git folder - in my case up to the $HOME directory that naturally contains a lot of files. This does not seem to make much sense as the .git folder does not necessarily belongs to the actual project.

I did not have the issue when I installed typescript (4.7.3) in the empty folder, created a proper tsconfig.json and ran npx tsc -w, so the error does not seem to come from the original ts watcher.

I am not sure if this is really a VSCode issue or comes from some component used by VSC.

VS Code version: Code 1.68.0 (4af164e, 2022-06-08T11:49:57.055Z)
OS version: Linux x64 5.3.18-150300.59.68-default
Restricted Mode: No