1. Update react and react-dom to 17.0.0-rc.1
2. Update gatsby to latest
3. Run yarn dev

This is the result:

While there's ongoing work to make Fast Refresh the default for compatible setups, in the meantime, can we figure out how to fix this error?

I'm guessing that what needs to happen is for hot-loader/react-dom#41 to be solved by publishing a patched package. This is likely little work, but requires access to that package (cc @theKashey). I could do this myself if I had the instructions.