Not a bug but intentional, and your workaround is exactly the solution :) Relevant IRC log for the future:

<dj-death> it seems that elements can rely on 2 ways to get to know what downstream can do for them
<dj-death> caps queries and allocation queries
<slomo> yes
<slomo> capsfeatures in the caps are requirements by downstream
<slomo> metas in the allocation query are things it supports but are not needed
<slomo> (so upstream can just ignore the stuff from the allocation query)
<dj-death> so textoverlay base it's caps responses on the downstream's caps
<dj-death> so if I don't put meta:GstVideoOverlayComposition in the video sink's caps, textoverlay doesn't seem to know about downstream supporting that
<slomo> the problem is not textoverlay but upstream of textoverlay there
<dj-death> but if I do, then other plugins don't link anymore because caps don't intersect anymore 
<slomo> because that upstream can only do the textuploadmeta if downstream can do videooverlaycomposition
<slomo> well, it's the combination between upstream and textoverlay here
<dj-death> really?
<dj-death> because upstream (the video decoder) doesn't know about subtitles
<slomo> well, textoverlay can either render the subtitles on raw video. in that case it does not care if downstream supports the videooverlay meta or not
<slomo> or it can create videooverlaymeta for anything else (GL textures, EGLImages, vaapi surfaces, stuff)
<slomo> but then it requires downstream to actually be able to handle that
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<__tim> uhm
<__tim> what about case 3: downstream only supports raw video, but can blend subtitles just fine?
<dj-death> yep, that's my understanding too
<__tim> that should be supported
<slomo> __tim: that's the first case, no?
<slomo> dj-death: so what you describe as workaround is actually the expected solution :)
<dj-death> slomo: ahah no ;)
<slomo> dj-death: you can do (textuploadmeta, videooverlaymeta), (textureuploadmeta), (sysmem)
<__tim> I understood the first case to be where textoverlay decides that it has to do the overlaying/blending itself because downstream can't handle it
<dj-death> slomo: you have to consider the whole pipeline here, including the decoder 
<slomo> dj-death: for simplicity, what's the decoder you care about here? vaapidec?
<dj-death> slomo: yep
<dj-death> slomo: which queries downstream to figure out whether it can use texture gl upload or not
* __tim is thinking of avdec_h264 ! textoverlay ! whateverblendsink btw
<slomo> dj-death: so the decoder sees that it can give downstream textureuploadmeta if your videosink has videooverlaycomp in its caps
<slomo> dj-death: that's what the code in textoverlay is supposed to do
<dj-death> slomo: but, because textoverlay doesn't see the meta:GstVideoOverlayComposition caps in the video sink's caps, it strips out the texture gl upload caps from the sink's response
<slomo> dj-death: (and additionally the decoder sees that it can do sysmem and whatever else)
<slomo> dj-death: yes, which is exactly what is expected there, no? your sink can't do videooverlaycomposition, so textoverlay can't work with non-sysmem
<dj-death> slomo: no, my sink can do that
<slomo> __tim: that case is still supported as before
<slomo> dj-death: what's the caps in your sink now?
<slomo> put it into a pastebin :)
<__tim> ok
<slomo> __tim: the new code path only is for the non-sysmem cases
<slomo> dj-death: if your sink only has (textureuploadmeta), (sysmem) then textoverlay will tell upstream only about sysmem
<slomo> dj-death: if your sink has (textuploadmeta, videooverlaymeta), (textureuploadmeta), (sysmem) then textoverlay will tell upstream about these three
<dj-death> dammit gst-inspect doesn't list my sink anymore
<slomo> dj-death: and if in the second case textoverlay only tells upstream about sysmem, then you found a bug and we should look into that :)
<dj-death> slomo: ok so I can't just report (textuploadmeta, videooverlaymeta) (sysmeme, videooverlaymeta)
<dj-death> slomo: I have to split cap features like this :
<slomo> yes you can't
<dj-death> alright :)
<dj-death> that's all good then
<slomo> each capsfeature is && combined, meaning that you need all of them at once
<slomo> so in your case you need the 3 i mentioned above
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<slomo> for sysmem you don't specifically need videooverlaymeta... but you can add it and it shouldn't hurt ;)
<dj-death> I actually have (textuploadmeta, videooverlaymeta), (textureuploadmeta), (sysmem, videooverlaymeta), (sysmem) now
<slomo> and might make negotiation in even more complex situations work better
<slomo> sounds good
<dj-death> cool