Sorry for being imprecise. Yes, I mean quoted filenames. (It's possible that the issue also arises for true remote filenames, but I haven't checked.)
You can easily reproduce user-facing problems. Assuming you have some binary installed that would check Java files using the legacy backend:
$ emacs -Q -eval '(progn (add-hook (quote prog-mode-hook) (quote flymake-mode)) (ediff "/:/tmp/a.java" "/:/tmp/b.java"))'
And Emacs immediately hangs because it runs into the endless loop. Stacktrace in this case is
Debugger entered--Lisp error: (quit)
display-warning((flymake flymake-proc) "Failed to delete dir /, error ignored" :error "*Flymake log*")
flymake--log-1(1 flymake-proc "Failed to delete dir %s, error ignored" "/")
flymake-proc--safe-delete-directory("/")
flymake-proc--delete-temp-directory("/tmp/:/tmp/")
flymake-proc-simple-java-cleanup()
#f(compiled-function () #<bytecode 0x11a4ea9>)()
flymake-proc-legacy-flymake(#f(compiled-function (&rest args) #<bytecode 0x11a4e51>))
flymake--run-backend(flymake-proc-legacy-flymake)
#f(compiled-function (backend) #<bytecode 0x117b195>)(flymake-proc-legacy-flymake)
run-hook-wrapped(#f(compiled-function (backend) #<bytecode 0x117b195>) flymake-proc-legacy-flymake)
flymake-start((post-command) nil)
#f(compiled-function () #<bytecode 0x1180771>)()
set-window-buffer(nil #<buffer a.java>)
switch-to-buffer(#<buffer a.java>)
ediff-setup-windows-multiframe-compare(#<buffer a.java> #<buffer b.java> nil #<buffer *Ediff Control Panel*>)
ediff-setup-windows-multiframe(#<buffer a.java> #<buffer b.java> nil #<buffer *Ediff Control Panel*>)
ediff-setup-windows-default(#<buffer a.java> #<buffer b.java> nil #<buffer *Ediff Control Panel*>)
ediff-setup-windows(#<buffer a.java> #<buffer b.java> nil #<buffer *Ediff Control Panel*>)
ediff-setup(#<buffer a.java> "/:/tmp/a.java" #<buffer b.java> "/:/tmp/b.java" nil nil nil ((ediff-job-name . ediff-files)) nil)
ediff-files-internal("/:/tmp/a.java" "/:/tmp/b.java" nil nil ediff-files)
ediff("/:/tmp/a.java" "/:/tmp/b.java")
(progn (add-hook (quote prog-mode-hook) (quote flymake-mode)) (ediff "/:/tmp/a.java" "/:/tmp/b.java"))
eval((progn (add-hook (quote prog-mode-hook) (quote flymake-mode)) (ediff "/:/tmp/a.java" "/:/tmp/b.java")))
command-line-1(("-f" "toggle-debug-on-quit" "-eval" "(progn (add-hook (quote prog-mode-hook) (quote flymake-mode)) (ediff \"/:/tmp/a.java\" \"/:/tmp/b.java\"))"))
command-line()
normal-top-level()