TDD a polished custom VS Code filesystem module

Description

In Configure TDD for custom filesystem module for ... (#355922 - closed) we configured a TDD environment for us to flesh out the client-side filesystem implementation.

In this issue let's make the failing tests pass and add any other "failing" scenarios that we're missing.

Tasks

• Make failing tests from #355922 (closed) pass
• Flesh out more robust test cases
• Refactor and polish