fix .git watch, update readme docs

cli/azd/extensions/azure.ai.agents/README.md

@@ -32,20 +32,6 @@
    azd x publish
    ```
 
-   > **Troubleshooting**: If `azd x publish` fails with "(Failed to load registry)":
-   > 1. Create the registry file (needs to be valid JSON):
-   >    ```bash
-   >    echo '{}' > ~/.azd/registry.json
-   >    ```
-   > 2. Add the local registry as a source:
-   >    ```bash
-   >    azd ext source add -n local -l registry.json -t file
-   >    ```
-   > 3. Retry the publish command:
-   >    ```bash
-   >    azd x publish
-   >    ```
-
 3. **Install the extension**:
    ```bash
    azd ext install azure.ai.agents

cli/azd/extensions/microsoft.azd.extensions/README.md

@@ -1,3 +1,13 @@
 # `azd` X Extension
 
 The `X` extension is used for developing `azd` extensions.
+
+## Local development
+
+```bash
+# Use current version of 'microsoft.azd.extensions' in the registry for bootstrapping
+azd x pack --skip-install
+
+# Perform a manual installation
+cp -f bin/* ~/.azd/extensions/microsoft.azd.extensions/
+```

cli/azd/extensions/microsoft.azd.extensions/internal/cmd/watch.go

@@ -56,6 +56,7 @@ func runWatchAction(ctx context.Context, flags *watchFlags) error {
 		"obj":          {},
 		"build":        {},
 		"node_modules": {},
+		".git":         {},
 	}
 
 	globIgnorePaths := []string{}