GHC does not rewrite in FunTy

Consider

{-# LANGUAGE ExplicitForAll, PolyKinds, DataKinds, TypeFamilies, GADTs #-}

module Bug where

import GHC.Exts

class C x where
  meth :: x -> ()
instance C (a -> b) where
  meth _ = ()

type family Lifty throttle where
  Lifty Int = LiftedRep

data G a where
  MkG :: G Int

foo :: forall i (a :: TYPE (Lifty i)) (b :: TYPE (Lifty i)). G i -> (a -> b) -> ()
foo MkG = meth

GHC rejects, saying it cannot find an instance for C (a -> b). But it should accept.

The problem is that the kinds of a and b are TYPE (Lifty i). Even if we know i ~ Int, and therefore that Lifty i ~ LiftedRep, GHC does not rewrite these kinds internally, allowing instance matching to succeed.

!2477 (closed), when complete, should address this.