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GHC chooses an instance between two overlapping, but cannot resolve a clause within the similar closed type family

We hoped that closed type families could replace overlapping instances. It is not currently the case: GHC can resolve overlapping instances but cannot resolve the similar closed type family.

I'm attaching a minimized example of program where it can be observed. This is reproducible on ghc-7.8.3 and HEAD.

Trac metadata
Trac field Value
Version 7.8.3
Type Bug
TypeOfFailure OtherFailure
Priority normal
Resolution Unresolved
Component Compiler
Test case
Differential revisions
BlockedBy
Related
Blocking
CC
Operating system
Architecture
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