The zip has some weird layout. You have Library1.cpp and Library1.h in with the project sources. This isn't a structure that  visual micro has suggested or provided and I have no idea what issue you are reporting.

You should work the the "Show all files" button enabled in the solution explorer so you can see the physical file/folder structure.

The visual micro example with Library1 puts it in project/_micro-api/libraries/Library1

That's an important path for local libraries

If you put a source code in the project then it is a project source even if it has the same name as a library.


note: 

If you use windows explorer to change the project structure then you can right click items in the project view that don't exist anymore and click "remove"

If you use "Show all files" view you can right click files or folder and then click "Include in Project" or "Exclude from Project" to use or stop using files from the local project.

Currently files in the root are always compiled because that's what the arduino ide does but it grates with VS so might become an option.

Thanks this appears to be a problem related to the new "vMicro>Compiler>Allow project code to override library code"

I will look at it but you can switch that option off then it should build okay?

Great. It's a new feature and is only mentioned in the release notes at the moment. The docs will be updated over the next 14 days.

If you have code in _micro-api/libraries these are considered external libraries and compiled as such. The new feature should not affect the compile of libraries.

If you add a source code to the project sources (not _mircro-api/) then the question is whether or not you want the same name file compiled if it exists in any library. Historically, both the  project version of the file and the version in the library will be compiled which is why the menu item defaults to OFF. 

To be clear, if we use spi library we have \libraries\SPI\SPI.cpp. If we also add a file to our local project called SPI.cpp then both files will be compiled, unless the new menu item is enabled in which case libraries\SPI\SPI.cpp is ignored.

When you use the menu item the setting is applied to the current project and also made the default for projects where you have never specified a preference.