[BUG] Latest version aggressively hides all previous output during active session #41907

Description

In the latest version of Claude Code CLI, all previous output is hidden/collapsed during an active conversation session. Previously, only very old parts of the conversation would be collapsed, keeping recent output visible. Now everything disappears as Claude works, making it impossible to follow what was done.

Steps to reproduce

1. Start a Claude Code CLI session
2. Ask Claude to perform several tasks (e.g., reading files, making edits)
3. Observe that previous output gradually disappears — not just old messages, but recent ones too

Expected behavior

• Only very old parts of the conversation should be collapsed (previous behavior)
• Recent output should remain visible so the user can follow what Claude is doing
• Ctrl+E should work to expand collapsed content

Actual behavior

• All previous output is hidden, even recent tool results and messages
• The user cannot see what Claude has done during the conversation
• Ctrl+E does not work to expand/reveal the hidden content
• Ctrl+O transcript viewer does not resolve the issue

Related issues

• [BUG] No way to view pre-compaction conversation history — Ctrl+O/Ctrl+E broken, thinking blocks hidden #26125 — similar but focused on post-compaction history; this issue affects output visibility during active sessions and appears to be a regression in the latest version

Environment

• Claude Code: latest version (2.1.89+)
• OS: macOS
• Terminal: default