It doesn't do much, and certainly does not qualify as being unmodified existing code (which is what this whole system is supposed to be able to run as one of its benefits.)
That example is actually running dash - the Debian Almquist shell.
The weirdness (and reason that cd + setting variables doesn't work) is because whenever you type a command in, it executes:
$ dash -c '$COMMAND'
Rather than having a long-running shell process listing to standard in. We plan to fix this and implement a full TTY subsystem in the next month or so.