Horrible error message due to TypeInType

Consider this

{-# LANGUAGE MagicHash, UnboxedTuples #-}

module Foo where

import GHC.Exts

g :: Int -> (# Int#, a #)
g (I# y) = (# y, undefined #)

f :: Int -> (# Int#, Int# #)
f x = g x

With GHC 8 we get

Foo.hs:11:7: error:
    • Couldn't match a lifted type with an unlifted type
      Expected type: (# Int#, Int# #)
        Actual type: (# Int#, Int# #)

What a terrible error message!! It was much better in GHC 7.10:

Foo.hs:11:7:
    Couldn't match kind ‘*’ with ‘#’
    When matching types
      a0 :: *
      Int# :: #
    Expected type: (# Int#, Int# #)
      Actual type: (# Int#, a0 #)

What's going on?

The constraint solver sees

[W] alpha::TYPE LiftedRep  ~  Int#::TYPE IntRep

So it homogenises the kinds, and unifies alpha (this did not happen in GHC 7.10), thus

alpha := Int# |> TYPE co

[W] co :: LiftedRep ~ IntRep

Of course the new constraint fails. But since we have unified alpha, when we print out the types are are unifying they both look like (# Int#, Int# #) (there's a suppressed cast in the second component).

I'm not sure what to do here.

(I tripped over this when debugging #13509 (closed).)