Except in this case the 'shop' is in Illinois. A California resident commutes his bits to Illinois and somehow in all it's wisdom California wants to exercise itself outside of its jurisdiction into the shop in Illinois.

No, in this case the shop is in California, where the California resident is performing his work, which is then transmitted to the office in Illinois.

CA gets to regulate the company with respect to its CA operations, i.e., that employee in CA. The CA regulations don't apply to any of the company's non-CA employees.

This has always been the rule with respect to employees working in other jurisdictions.

I recall that Kansas and Missouri had a tax arrangement as lots of people lived on one side and worked on the other (there are two Kansas City’s). This meant that only the excess was paid to whichever had the higher tax rates although both forms were filed.