Had an issue with a custom app that extensions were not hot-reloading even though they were being loaded/detected fine. Tracked it down to the extension search paths in the .kit file.
The following causes the extensions to not be hot-reloaded:
[settings.app.exts]
folders.'++' = ["${kit}/../exts/"]
However removing the trailing slash fixed the issue:
[settings.app.exts]
folders.'++' = ["${kit}/../exts"]