Spotlight ignores hidden directories (e.g. .git) and directories whose names end in .noindex. You can create a file in one with a unique name and try to mdfind it to verify this.
I'm sure it gets the events. It probably has to walk back up the tree to determine if the file is hidden. Dunno how much work it does. I presume it doesn't actually do the metadata extraction from the files. (But my presumption is based on "surely they wouldn't do that".)
The biggest offender for me when I touch a lot of files is Dropbox. It seems to use a lot of CPU when, e.g., an Xcode update is being installed. I've read that they had to listen to events for the whole volume because the more specific APIs weren't giving them the data they needed, but you'd think they could fast-path the files that were outside their sandbox.
Is your dev drive a platter drive or SSD? I've found that the last few major releases of osx have big performance issues on systems with old-school hard drives. (Frequent beach-balling, etc.)
