They work just fine, as the drive-specific CWD is stored in the environment as a normally-hidden =<drive-letter>: environment variable which has all the same WTF-16 and case-insensitive properties as drive letters:
C:\> cd /D λ:\
λ:\> cd bar
λ:\bar> cd /D C:\
C:\> echo %=Λ:%
λ:\bar
C:\> cd /D Λ:
λ:\bar>
