@mcallisto could you open an issue Issues · lampepfl/dotty · GitHub?
I also noticed that the issue is not only on extension methods.
import scala.collection.SeqOps
def foo[A, CC[B] <: SeqOps[B, CC, CC[B]]](seq: CC[A]): CC[A] = seq.tail
def test: Unit = foo("ABC")
It seems to be related with the implicit conversion from String into Seq[Char]. Making the conversion more explicit fixes the issue.
def test2: Unit = foo("ABC": Seq[Char])