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Description
Project References do not appear be honored in tsserver starting in Nightly 3.9.0-dev.20200313. This results in an error in Visual Studio code when importing from 'some-pkg/dist/file' when that file has not yet been built.
TypeScript Version: 3.9.0-dev.20200313 and later
Search Terms:
references tsserver
Code
Minimal reproduction project attached. repro.zip
This seems to be an issue with tsserver, and so I can only reproduce it in Visual Studio Code (not with tsc -b).
The error is a regression starting in version 3.9.0-dev.20200313. There was no error in 3.9.0-dev.20200312 and previous.
To reproduce, use attached repro.zip, here are simple instructions and the screenshot of the result.
unzip repro.zip
cd repro-ts-bug
yarn install
code .
code src1/one.ts
See issue in 3.9.0-dev.20200313:

This should work because of a project reference to src2/tsconfig.json from src1/tsconfig.json, and it does work in the previous build of typescript.
You can see this is a regression. Installing the previous version and reloading the window demonstrates no error.
yarn add typescript@3.9.0-dev.20200312
And reload window. No issue in 3.9.0-dev-20200312
Expected behavior:
No error, as in second screenshot
Actual behavior:
Error:
Cannot find module '../dist2/two' or its corresponding type declarations.
Playground Link:
Unable to demonstrate project reference issues with playground (as far as I know)
Related Issues:
