I've since learned this bug is upstream; and have most of a fix. Basically I'm bogged down in autoconf; which makes it unsuitable for upstream but I could provide a debian specific patch without autoconf.
I don't think the openssh team likes gmail much; the mailing list for reporting anything upstream doesn't want to let me join or send anything. I've thought about it, and constructing a chroot directory per user is a rather big ask on server support; it really does seem like allowing ChrootDirectory %h to work with a writable home directory is better than any alternative. It's actually less effort to patch locally but a local rebuild in the middle of the night is a pill.
