I’m seeing the same symptom as in Sublime Merge showing every file as staged when I installed Sublime Merge on a second machine. The repo set up is very similar, and the huge number of files listed as staged makes the app impossible to use (hangs for ~90 seconds trying to do anything, as it’s trying to show a ridiculous diff).
I can’t see any relevant difference between config on the working machine compared to the “everything is staged” machine. The repos are at the same paths, same version of Sublime Merge, same git configs, more or less…