This does in fact appear to be a bug, as it works on occasion but there is no pattern to it working or not. Reported to Adobe. Would be curious if others are experiencing the same problem.

Is it different enough to warrant a second response? Maybe one for photoshop and one for illustrator, if the illustrator workflow differs considerably? I, and I'm sure others, would enjoy seeing both approaches.

I was thinking app agnostic a little bit I assumed that this would probably have to be done in PS for it to be of any use. I.e. maybe it would be possible to do in illustrator but probably wouldn't make as much sense or be manipulatable to the same degree. Horatio's answer nails this one for me though.