Derive selected overlay context from the main input

internal/engine/load_request.go

@@ -190,10 +190,20 @@ func assembleLayeredInput[T any](request loadRequest[T], input assembledInput, p
 	assembly.current.inputBytes = state.accounting.bytes
 	assembly.current.inputNodes = state.accounting.nodes
 	if activeOverlay(request.overlay) {
-		if request.overlayFilesystem == nil {
-			return input, append(versionDiagnostics, optionDiagnostic(CodeOptionsInvalid, "selected overlay requires explicit filesystem context"))
+		var resolved resolvedFilesystemContext
+		var diagnostic *Diagnostic
+		useBase := false
+		if request.overlayFilesystem != nil {
+			resolved, diagnostic = resolveAbsentFilesystemContext(request.overlayFilesystem)
+		} else if input.resolvedFilesystem != nil {
+			resolved = *input.resolvedFilesystem
+			useBase = true
+		} else if request.overlayFallback != nil {
+			resolved, diagnostic = resolveAbsentFilesystemContext(request.overlayFallback)
+			useBase = true
+		} else {
+			return input, append(versionDiagnostics, optionDiagnostic(CodeOptionsInvalid, "selected overlay requires a filesystem context"))
 		}
-		resolved, diagnostic := resolveAbsentFilesystemContext(request.overlayFilesystem)
 		if diagnostic != nil {
 			return input, append(versionDiagnostics, *diagnostic)
 		}
@@ -204,6 +214,9 @@ func assembleLayeredInput[T any](request loadRequest[T], input assembledInput, p
 			name: request.overlay, protectionRule: request.protectionVersion(),
 			sequencePolicy: policy.sequencePolicy, limits: defaultImportLimits(), versionState: input.versionState,
 		}
+		if useBase {
+			overlayRequest.lookupDirectory = resolved.basePath
+		}
 		var diagnostics []Diagnostic
 		access, diagnostic := openSelectedOverlayAccess(resolved)
 		if diagnostic != nil {

internal/engine/selected_overlay.go

@@ -29,11 +29,12 @@ func validOverlayName(name string) bool {
 }
 
 type selectedOverlayRequest struct {
-	name           string
-	protectionRule *VersionRule
-	sequencePolicy sequencePolicy
-	limits         importLimits
-	versionState   *sourceVersionState
+	name            string
+	lookupDirectory string
+	protectionRule  *VersionRule
+	sequencePolicy  sequencePolicy
+	limits          importLimits
+	versionState    *sourceVersionState
 }
 
 func resolveOrdinaryOverlayFilesystem(source Source, context *FilesystemContext, main parsedSource, existing *resolvedFilesystemContext) (resolvedFilesystemContext, *Diagnostic) {
@@ -70,7 +71,11 @@ func loadSelectedOverlay(request selectedOverlayRequest, access *filesystemAcces
 			_ = access.close()
 		}
 	}()
-	overlayPath := access.join(access.rootPath, "overlays/"+request.name+".yml")
+	lookupDirectory := request.lookupDirectory
+	if lookupDirectory == "" {
+		lookupDirectory = access.rootPath
+	}
+	overlayPath := access.join(lookupDirectory, "overlays/"+request.name+".yml")
 	canonical, err := access.canonical(overlayPath)
 	if err != nil {
 		code := CodeOverlayInvalid