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The encore.dev entry in node_modules is a symlink to a folder, not a file, which is why VS Code looks confused when you click it. The actual breakage was that the reporter had bind mounted their local project folder into a prebuilt docker image, which broke the symlink to /root/../../encore.dev and killed module resolution. Fix: dont bind mount your project over the docker image, or if you must, re-create the encore.dev symlink so it points at a real folder. The reporter confirmed everything worked once the mount was fixed. Source: https://github.com/encoredev/encore/issues/1494
Source: https://github.com/encoredev/encore/issues/1494