The current rules for discarding submodule changes is that no other changed item must be also selected. There are some bugs with the current implementation when submodules are in folders. For example, selecting and discarding a folder with only a nested submodule change will currently do nothing. The submodule changes should be discarded. The folder only contains submodule changes so it should be no different than pressing discard on the submodule entry itself. Also, I noticed range selecting both the folder and the submodule and then pressing discard would be incorrectly disallowed.
FileTree Package
This package handles the representation of file trees. There are two ways to render files: one is to render them flat, so something like this:
dir1/file1
dir1/file2
file3
And the other is to render them as a tree
dir1/
file1
file2
file3
Internally we represent each of the above as a tree, but with the flat approach there's just a single root node and every path is a direct child of that root. Viewing in 'tree' mode (as opposed to 'flat' mode) allows for collapsing and expanding directories, and lets you perform actions on directories e.g. staging a whole directory. But it takes up more vertical space and sometimes you just want to have a flat view where you can go flick through your files one by one to see the diff.
This package is not concerned about rendering the tree: only representing its internal state.