Notebook diffs are not a mirage. The #vscode team have done it.

Some things I learned....

2/ For now you'll need the Insiders version of VS Code...you can get that here: https://code.visualstudio.com/insiders/ 

3/ It also shows you a diff of the metadata which you can collapse.

4/ Markdown Cells work just like code.

5/ One thing to be aware of. If you add a cell in the middle of your notebook git will compare it to the cell that was at the same spot pre-commit like so:

6/ End of thread. Great work #vscode team!