Seems like a good change. I'll try it for a while.
I haven't re-read the issue yet - maybe we can briefly summarize the reason for this change.

I gues zsh will only show the basename even if there is no truncation going on,
but we don't need to go there - your approach is safer.

after re-reading the issue, I think we should eventually have a generic way
of making sure that the common prefix is not way larger than any of the suffixes.

But that can definitely be done later, and I expect that we'll still want to keep the special handling of "/".

this works for absolute paths but it doesn't seem to work for ~/some/path, can we fix that?

Unless I'm misunderstanding you, it should already work for relative directories, but it depends on the length of the prefix. For example, here's my fish config dir:

But even with an absolute path, a short prefix won't collapse:

yeah my bad

parts.len() < 2 is a bit confusing because there's always at least one part.
Better make that obvious by checking parts.len() == 1.

Actually we should also get rid of the gratuitous vector, how about

let (i, last_component) = truncated.split('/').enumerate().last().unwrap();
if i == 0 {
    // No path separators were found in the common prefix, so we can't collapse
    // any further
    prefix.push_utfstr(&truncated);
} else {
    // Discard any parent directories and include whats left
    prefix.push('/');
    prefix.push_utfstr(last_component);
};

I'm wondering if we should also allow = and : as separators, since we sort of do that when computing completions.
I guess let's wait until we find a use case; the LHS is not usually very large.

should probably add to the changelog, maybe something like

- When tab completion results are truncated, the common directory name is omitted.

This didn't break any tests locally for me. I'm willing to add new tests for this behavior, but I could use some direction as to where they would need to go and what sort of setup and/or mocking would be required.

We don't have mocking for src/reader.rs yet, so either add that or write
a system test, maybe in tmux-pager.fish. To run, use

cargo b && tests/test_driver.py target/debug tests/checks/tmux-pager.fish