I personally find this to be a substantially better pattern. That squashed commit also becomes the entire changeset - so from a code archeology perspective it becomes much easier to understand what and why. Especially if you have a team culture that values specific PRs that don’t include unrelated changes. I also find it thoroughly helpful to be able to see the PR discussions since the link is in the commit message.
I agree, much as it's a loss for git as a distributed system (though I think that ship sailed long ago regardless). As far as unrelated changes, I've been finding that another good LLM use-case. Like hey Claude pull this PR <link> and break it up into three new branches that individually incorporate changes A, B, and C, and will cleanly merge in that order.
One minor nuisance that can come up with GitHub in particular when using a short reference like #123 is that that link breaks if the repo is forked or merged into something else. For that reason, I try to give full-url references at least when I'm manually inserting them, and I wish GitHub would do the same. Or perhaps add some hidden metadata to the merge commit saying "hey btw that #123 refers to <https://github.com/fancy-org/omg-project/issues/123>"