Squeak and related Smalltalk implementations have the same version-control problem as Medley for distributed development: Git cannot properly diff or properly merge the textual representations of two different images. If anything, the problem is worse in Smalltalk because (a) there is only one text file, not many, and (b) not all bits in the image correspond to code in the text file: some pre-1980 bits were set directly in the image before the text file was started.
However, Squeak uses a version-control system called Monticello that supposedly solves this problem. I know almost nothing about it, but I'm going to investigate it as I can, along with possible alternatives, and report back here.