This screenshot is with V3.

@mattdamon108 thanks for spotting the location of the issue.

Now for the error message, looking at the error after PPX.

Desugared:

module Foo = {
  let compare = (nextProps, currentProps) => nextProps["foo"] == currentProps["foo"]
  let memo = React.memoCustomCompareProps(_, compare)
  type props<'foo> = {key?: string, foo: 'foo}

  let make = ({foo, _}: props<string>) => React.string(foo)
  let make = memo({
    let \"Tst$Foo" = (props: props<_>) => make(props)

    \"Tst$Foo"
  })
}

Error:

  We've found a bug for you!
  /Users/cristianocalcagno/GitHub/rescript-vscode/analysis/tests/src/Tst.res:10:5-14

   8 │     let \"Tst$Foo" = (props: props<_>) => make(props)
   9 │ 
  10 │     \"Tst$Foo".    <-------
  11 │   })
  12 │ }

  This has type: props<string> => React.element
  Somewhere wanted:
    React.component<({.."foo": 'b} as 'a)> (defined as 'a => React.element)
  
  The incompatible parts:
    props<string> vs 'a

Alternative JSX behaviour (don't let-define Tst$Foo):

module Foo = {
  let compare = (nextProps, currentProps) => nextProps["foo"] == currentProps["foo"]
  let memo = React.memoCustomCompareProps(_, compare)
  type props<'foo> = {key?: string, foo: 'foo}

  let make = ({foo, _}: props<string>) => React.string(foo)
  let make = memo({
    (props: props<_>) => make(props)
  })
}

Error:

The second one is clearer, but I'm not sure how clearly it can be expressed w.r.t. the original code.

@mattdamon108 I'm thinking of merging the PR as it is now.
Thoughts?

Alternative JSX behaviour (don't let-define Tst$Foo):

Can you show me the js output? The lef-define such as Tst$Foo is a secret recipe to make the js output function name starting with the capital letter.

Sorry for missing to add tests 😓 I won't forget next time.

Alternative JSX behaviour (don't let-define Tst$Foo):

Can you show me the js output? The lef-define such as Tst$Foo is a secret recipe to make the js output function name starting with the capital letter.

That magic does nothing useful when the top-level of the body is an application: it simply gets lost.