Yes indeed. The explanations are pretty good too.

This is a gotcha that deserves to be more widely known. A recent patch to ghc gives a better error message explaining what's going on.

How does one go about using withFile correctly then?

If you see the code "withFile filename ReadMode" chances are you should replace it with "readFile filename".

Hence, instead of

main = do
        cnts <- withFile "example.hs" ReadMode $ (\h -> do
            res <- hGetContents h
            --putStr res
            return res)
        putStr cnts

write

main = do
        cnts <- readFile "example.hs"
        putStr cnts

or more idiomatically

main = readFile "example.hs" >>= putStr