Okey, correction then, if you are not Sun/Oracle (and most people aren't) and create an identical copy of CDDL and call it "bobs license", then BL and CDDL is incompatible because of the conditions in the otherwise identical licenses. Point being, the condition that create the incompatibility between CDDL and GPL is that both want their license to be used when distributing. Remove that condition from either license, that is CDDL or GPL, and the license incompatibility goes away. It would also turn either license into a permissive license.

The CDDL's restriction is only in the files containing the code. The GPL's restriction is on all files within a derived work, whether they contain GPL code or not.

Is you argument that CDDL condition is somehow smaller in scope than GPL? GPLv3 also cover anti-DRM clauses, but that doesn't make it more or less compatible with CDDL requirement that source code is made available only under CDDL license.

If CDDL did not have their condition that source code is only made available under CDDL license, then the incompatibility would not exist. If GPL had similar loophole as CDDL and permitted modifications to be under different license if they are put as a separate file node in the file system, then the two permissions would permit a single project to include software under both licenses. I doubt CDDL will receive such update, and there is already LGPL.

The loophole is quite interesting from a legal point of view. Would a filesystem based on a database be fine? The computer would be storing all the code in a single file, but the presentation would look like that file is actually two different ones. Same goes with a gz file and "virtual" file systems, that present data inside as if it were separated files on the disk. What about a container image where a single work has source code under CDDL and source code under some other license?

The CDDL is designed to be a per-file license. All other files in a project can be proprietary as far as it is concerned as long as the files containing CDDL code are under the CDDL. Sun wanted it that way. The GPL's insistence that CDDL covered files be under it when they are used as part of a derived work (in the legal sense) is why incompatibility can occur.