diff --git a/crates/capsule-cli/Cargo.lock b/crates/capsule-cli/Cargo.lock
index e099df7..ea7ae0c 100644
--- a/crates/capsule-cli/Cargo.lock
+++ b/crates/capsule-cli/Cargo.lock
@@ -322,7 +322,7 @@ dependencies = [
 
 [[package]]
 name = "capsule-core"
-version = "0.8.0"
+version = "0.8.5"
 dependencies = [
  "anyhow",
  "blake3",
@@ -351,7 +351,7 @@ dependencies = [
 
 [[package]]
 name = "capsule-run"
-version = "0.8.0"
+version = "0.8.5"
 dependencies = [
  "capsule-core",
  "clap",
diff --git a/crates/capsule-cli/Cargo.toml b/crates/capsule-cli/Cargo.toml
index 1906790..b16a571 100644
--- a/crates/capsule-cli/Cargo.toml
+++ b/crates/capsule-cli/Cargo.toml
@@ -1,6 +1,6 @@
 [package]
 name = "capsule-run"
-version = "0.8.0"
+version = "0.8.5"
 edition = "2024"
 description = "Secure WASM runtime to isolate and manage AI agent tasks"
 license = "Apache-2.0"
@@ -16,7 +16,7 @@ path = "src/main.rs"
 
 [dependencies]
 clap = { version = "4.5.53", features = ["derive"] }
-capsule-core = { version= "0.8.0", path = "../capsule-core" }
+capsule-core = { version= "0.8.5", path = "../capsule-core" }
 tokio = { version = "1.48.0", features = ["rt", "rt-multi-thread", "macros"] }
 serde_json = "1"
 dotenvy = "0.15.7"
diff --git a/crates/capsule-cli/npm/package.json b/crates/capsule-cli/npm/package.json
index 375c041..1cf2508 100644
--- a/crates/capsule-cli/npm/package.json
+++ b/crates/capsule-cli/npm/package.json
@@ -1,6 +1,6 @@
 {
   "name": "@capsule-run/cli",
-  "version": "0.8.0",
+  "version": "0.8.5",
   "description": "Secure WASM runtime to isolate and manage AI agent tasks",
   "bin": {
     "capsule": "./bin/capsule.js"
@@ -29,9 +29,9 @@
     "node": ">=18"
   },
   "optionalDependencies": {
-    "@capsule-run/cli-darwin-arm64": "0.8.0",
-    "@capsule-run/cli-darwin-x64": "0.8.0",
-    "@capsule-run/cli-linux-x64": "0.8.0",
-    "@capsule-run/cli-win32-x64": "0.8.0"
+    "@capsule-run/cli-darwin-arm64": "0.8.5",
+    "@capsule-run/cli-darwin-x64": "0.8.5",
+    "@capsule-run/cli-linux-x64": "0.8.5",
+    "@capsule-run/cli-win32-x64": "0.8.5"
   }
 }
diff --git a/crates/capsule-cli/pyproject.toml b/crates/capsule-cli/pyproject.toml
index 50c688c..9a77702 100644
--- a/crates/capsule-cli/pyproject.toml
+++ b/crates/capsule-cli/pyproject.toml
@@ -4,7 +4,7 @@ build-backend = "maturin"
 
 [project]
 name = "capsule-run"
-version = "0.8.0"
+version = "0.8.5"
 description = "Secure WASM runtime to isolate and manage AI agent tasks"
 readme = "docs/README-pypi.md"
 license = {text = "Apache-2.0"}
diff --git a/crates/capsule-core/Cargo.lock b/crates/capsule-core/Cargo.lock
index ca78e16..de0a23a 100644
--- a/crates/capsule-core/Cargo.lock
+++ b/crates/capsule-core/Cargo.lock
@@ -302,7 +302,7 @@ dependencies = [
 
 [[package]]
 name = "capsule-core"
-version = "0.8.0"
+version = "0.8.5"
 dependencies = [
  "anyhow",
  "blake3",
diff --git a/crates/capsule-core/Cargo.toml b/crates/capsule-core/Cargo.toml
index 9f5aa55..0a43c72 100644
--- a/crates/capsule-core/Cargo.toml
+++ b/crates/capsule-core/Cargo.toml
@@ -1,6 +1,6 @@
 [package]
 name = "capsule-core"
-version = "0.8.0"
+version = "0.8.5"
 edition = "2024"
 description = "Core library for Capsule - WASM runtime for AI agent isolation"
 license = "Apache-2.0"
diff --git a/crates/capsule-core/src/wasm/compiler/javascript.rs b/crates/capsule-core/src/wasm/compiler/javascript.rs
index 1c51386..c4874d7 100644
--- a/crates/capsule-core/src/wasm/compiler/javascript.rs
+++ b/crates/capsule-core/src/wasm/compiler/javascript.rs
@@ -114,22 +114,6 @@ impl JavascriptWasmCompiler {
         }
     }
 
-    fn find_package(package_name: &str, source_dir: &Path, sdk_path: &Path) -> PathBuf {
-        if let Some(project_node_modules) = Self::find_node_modules(source_dir) {
-            let project_path = project_node_modules.join(package_name);
-            if project_path.exists() {
-                return project_path;
-            }
-        }
-
-        let sdk_node_modules = sdk_path.join("node_modules").join(package_name);
-        if sdk_node_modules.exists() {
-            return sdk_node_modules;
-        }
-
-        source_dir.join("node_modules").join(package_name)
-    }
-
     pub fn compile_wasm(&self, export: bool) -> Result<PathBuf, JavascriptWasmCompilerError> {
         let source_dir = self.source_path.parent().ok_or_else(|| {
             JavascriptWasmCompilerError::FsError("Cannot determine source directory".to_string())
@@ -200,11 +184,9 @@ export {{ incomingHandler }};
         let sdk_path_normalized = Self::normalize_path_for_command(&sdk_path);
         let output_wasm_normalized = Self::normalize_path_for_command(&self.output_wasm);
 
-        let unenv_path = Self::find_package("unenv", source_dir, &sdk_path_normalized);
         let os_polyfill_path = sdk_path_normalized.join("dist/polyfills/os.js");
         let process_polyfill_path = sdk_path_normalized.join("dist/polyfills/process.js");
         let fs_polyfill_path = sdk_path_normalized.join("dist/polyfills/fs.js");
-
         let mut esbuild_cmd = Self::npx_command();
         esbuild_cmd
             .arg("esbuild")
@@ -242,10 +224,10 @@ export {{ incomingHandler }};
                     .display()
             ));
 
-        esbuild_cmd.arg(format!("--alias:unenv={}", unenv_path.display()));
-
-        let unenv_node_dir = unenv_path.join("dist/runtime/node");
-        let mut stack = vec![(unenv_node_dir, String::new())];
+        let bundled_unenv_dir = sdk_path_normalized.join("dist/polyfills/unenv-runtime");
+        let bundled_node_dir = bundled_unenv_dir.join("node");
+        esbuild_cmd.arg(format!("--alias:unenv={}", bundled_unenv_dir.display()));
+        let mut stack = vec![(bundled_node_dir, String::new())];
         while let Some((dir, prefix)) = stack.pop() {
             let Ok(entries) = fs::read_dir(&dir) else {
                 continue;
@@ -378,19 +360,36 @@ export {{ incomingHandler }};
                 })?,
         );
 
-        let output = Self::npx_command()
-            .arg("tsc")
-            .arg(&self.source_path)
+        let source_dir = self.source_path.parent().ok_or_else(|| {
+            JavascriptWasmCompilerError::FsError("Cannot determine source directory".to_string())
+        })?;
+
+        let cache_dir_normalized = Self::normalize_path_for_command(&self.cache_dir);
+
+        let mut cmd = Self::npx_command();
+        cmd.arg("tsc");
+
+        let tsconfig_path = source_dir.join("tsconfig.json");
+        if tsconfig_path.exists() {
+            cmd.arg("--project")
+                .arg(Self::normalize_path_for_command(&tsconfig_path));
+        } else {
+            cmd.arg(Self::normalize_path_for_command(&self.source_path))
+                .arg("--module")
+                .arg("esnext")
+                .arg("--target")
+                .arg("esnext")
+                .arg("--moduleResolution")
+                .arg("bundler")
+                .arg("--esModuleInterop")
+                .arg("--skipLibCheck");
+        }
+
+        let output = cmd
             .arg("--outDir")
-            .arg(&self.cache_dir)
-            .arg("--module")
-            .arg("esnext")
-            .arg("--target")
-            .arg("esnext")
-            .arg("--moduleResolution")
-            .arg("bundler")
-            .arg("--esModuleInterop")
-            .arg("--skipLibCheck")
+            .arg(&cache_dir_normalized)
+            .arg("--rootDir")
+            .arg(Self::normalize_path_for_command(source_dir))
             .stdout(Stdio::piped())
             .stderr(Stdio::piped())
             .output()?;
diff --git a/crates/capsule-sdk/javascript/package-lock.json b/crates/capsule-sdk/javascript/package-lock.json
index 8d3216f..05b6cab 100644
--- a/crates/capsule-sdk/javascript/package-lock.json
+++ b/crates/capsule-sdk/javascript/package-lock.json
@@ -1,12 +1,12 @@
 {
   "name": "@capsule-run/sdk",
-  "version": "0.8.0",
+  "version": "0.8.5",
   "lockfileVersion": 3,
   "requires": true,
   "packages": {
     "": {
       "name": "@capsule-run/sdk",
-      "version": "0.8.0",
+      "version": "0.8.5",
       "license": "Apache-2.0",
       "dependencies": {
         "@bytecodealliance/jco": "^1.0.0",
diff --git a/crates/capsule-sdk/javascript/package.json b/crates/capsule-sdk/javascript/package.json
index 48cc282..70b80d9 100644
--- a/crates/capsule-sdk/javascript/package.json
+++ b/crates/capsule-sdk/javascript/package.json
@@ -1,6 +1,6 @@
 {
   "name": "@capsule-run/sdk",
-  "version": "0.8.0",
+  "version": "0.8.5",
   "description": "Capsule JavaScript SDK - run AI agent tasks in secure WASM sandboxes",
   "type": "module",
   "main": "./dist/index.js",
@@ -30,7 +30,7 @@
     "README.md"
   ],
   "scripts": {
-    "build": "tsc",
+    "build": "tsc && node scripts/copy-unenv-polyfills.mjs",
     "clean": "rm -rf dist"
   },
   "keywords": [
diff --git a/crates/capsule-sdk/javascript/scripts/copy-unenv-polyfills.mjs b/crates/capsule-sdk/javascript/scripts/copy-unenv-polyfills.mjs
new file mode 100644
index 0000000..beee162
--- /dev/null
+++ b/crates/capsule-sdk/javascript/scripts/copy-unenv-polyfills.mjs
@@ -0,0 +1,13 @@
+import { cpSync } from 'fs';
+import { join, dirname } from 'path';
+import { fileURLToPath } from 'url';
+import { createRequire } from 'module';
+
+const __dirname = dirname(fileURLToPath(import.meta.url));
+const require = createRequire(import.meta.url);
+
+const unenvDir = join(dirname(require.resolve('unenv/package.json')), 'dist/runtime');
+const outDir = join(__dirname, '../dist/polyfills/unenv-runtime');
+
+cpSync(unenvDir, outDir, { recursive: true });
+console.log(`Copied unenv runtime to ${outDir}`);
diff --git a/crates/capsule-sdk/javascript/src/polyfills/fs.ts b/crates/capsule-sdk/javascript/src/polyfills/fs.ts
index d9d5290..436174d 100644
--- a/crates/capsule-sdk/javascript/src/polyfills/fs.ts
+++ b/crates/capsule-sdk/javascript/src/polyfills/fs.ts
@@ -3,6 +3,8 @@
  * Provides both Node.js fs API
  */
 
+import { getCwd } from './process.js';
+
 declare const globalThis: {
     'wasi:filesystem/types': any;
     'wasi:filesystem/preopens': any;
@@ -76,11 +78,24 @@ function normalizePath(path: string): string {
     return path;
 }
 
+/**
+ * Absolute paths pass through unchanged.
+ */
+function getEffectivePath(path: string): string {
+    if (path.startsWith('/')) return path;
+
+    const cwd = getCwd();
+    if (cwd === '.' || cwd === '') return path;
+    if (path === '.') return cwd;
+    if (path.startsWith('./')) return cwd.replace(/\/+$/, '') + '/' + path.slice(2);
+    return cwd.replace(/\/+$/, '') + '/' + path;
+}
+
 function resolvePath(path: string): { dir: Descriptor; relativePath: string } | null {
     const preopens = getPreopenedDirs();
     if (preopens.length === 0) return null;
 
-    const normalizedPath = normalizePath(path);
+    const normalizedPath = normalizePath(getEffectivePath(path));
 
     let catchAll: { dir: Descriptor; relativePath: string } | null = null;
 
@@ -298,9 +313,6 @@ export function readdir(
 
 // ---------------------------------------------------------------------------
 // Sync implementations
-// wasi:filesystem/types@0.2.0 descriptor methods (openAt, read, write, stat,
-// readDirectory, etc.) are direct component-model imports — they are
-// synchronous from JS's perspective. No asyncify, no event-loop blocking.
 // ---------------------------------------------------------------------------
 
 function enoent(path: string): Error {
@@ -312,7 +324,6 @@ function enoent(path: string): Error {
 
 /**
  * Read file contents synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function readFileSync(path: string, options?: ReadFileOptions | Encoding): string | Uint8Array {
     const resolved = resolvePath(path);
@@ -332,7 +343,6 @@ export function readFileSync(path: string, options?: ReadFileOptions | Encoding)
 
 /**
  * Write data to a file synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function writeFileSync(path: string, data: string | Uint8Array, _options?: WriteFileOptions | Encoding): void {
     const resolved = resolvePath(path);
@@ -354,7 +364,6 @@ export function writeFileSync(path: string, data: string | Uint8Array, _options?
 
 /**
  * Append data to a file synchronously, creating it if it doesn't exist.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function appendFileSync(path: string, data: string | Uint8Array, _options?: WriteFileOptions | Encoding): void {
     const resolved = resolvePath(path);
@@ -377,7 +386,6 @@ export function appendFileSync(path: string, data: string | Uint8Array, _options
 
 /**
  * Read directory contents synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function readdirSync(path: string, _options?: any): string[] {
     const resolved = resolvePath(path);
@@ -431,7 +439,6 @@ function makeStatResult(type: 'file' | 'directory' | 'notfound', size: bigint =
 
 /**
  * Get file stats synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function statSync(path: string): StatResult {
     const resolved = resolvePath(path);
@@ -456,7 +463,6 @@ export function lstatSync(path: string): StatResult {
 
 /**
  * Create a directory synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function mkdirSync(path: string, options?: MkdirOptions): void {
     if (options?.recursive) {
@@ -481,7 +487,6 @@ export function mkdirSync(path: string, options?: MkdirOptions): void {
 
 /**
  * Remove a directory synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function rmdirSync(path: string, _options?: RmdirOptions): void {
     const resolved = resolvePath(path);
@@ -495,7 +500,6 @@ export function rmdirSync(path: string, _options?: RmdirOptions): void {
 
 /**
  * Remove a file or directory synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function rmSync(path: string, options?: RmOptions): void {
     const resolved = resolvePath(path);
@@ -527,7 +531,6 @@ export function rmSync(path: string, options?: RmOptions): void {
 
 /**
  * Remove a file synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function unlinkSync(path: string): void {
     const resolved = resolvePath(path);
@@ -541,7 +544,6 @@ export function unlinkSync(path: string): void {
 
 /**
  * Copy a file synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function copyFileSync(src: string, dest: string): void {
     const data = readFileSync(src) as Uint8Array;
@@ -550,8 +552,6 @@ export function copyFileSync(src: string, dest: string): void {
 
 /**
  * Rename a file or directory synchronously.
- * Falls back to copy+delete since wasi:filesystem/types@0.2.0
- * does not expose a rename/link-at in the current WIT binding.
  */
 export function renameSync(oldPath: string, newPath: string): void {
     try {
@@ -582,7 +582,6 @@ export function accessSync(path: string, _mode?: number): void {
 
 /**
  * Check if a path exists synchronously.
- * Backed by wasi:filesystem/types@0.2.0 — fully synchronous.
  */
 export function existsSync(path: string): boolean {
     const resolved = resolvePath(path);
diff --git a/crates/capsule-sdk/javascript/src/polyfills/process.ts b/crates/capsule-sdk/javascript/src/polyfills/process.ts
index 318ad48..01282c9 100644
--- a/crates/capsule-sdk/javascript/src/polyfills/process.ts
+++ b/crates/capsule-sdk/javascript/src/polyfills/process.ts
@@ -70,22 +70,44 @@ function getArgv(): string[] {
 }
 
 /**
- * Get current working directory from WASI
+ * Initialized from wasi:cli/environment initialCwd(), falls back to '.'.
  */
-function getCwd(): string {
-    const bindings = getEnvBindings();
-    if (!bindings || typeof bindings.initialCwd !== 'function') {
-        return '/';
-    }
-
+let _virtualCwd: string = (() => {
     try {
-        const cwd = bindings.initialCwd();
-        return cwd || '/';
-    } catch {
-        return '/';
+        const env = (globalThis as any)['wasi:cli/environment'];
+        if (env && typeof env.initialCwd === 'function') {
+            return env.initialCwd() ?? '.';
+        }
+    } catch {}
+    return '.';
+})();
+
+/**
+ * Internal setter for virtual CWD — handles relative and absolute paths.
+ */
+function setCwd(directory: string): void {
+    if (!directory) return;
+    if (directory.startsWith('/')) {
+        _virtualCwd = directory.replace(/\/+$/, '') || '/';
+    } else if (directory === '..') {
+        const parts = _virtualCwd.split('/').filter(Boolean);
+        parts.pop();
+        _virtualCwd = parts.join('/') || '.';
+    } else {
+        _virtualCwd = (_virtualCwd === '.' || _virtualCwd === '')
+            ? directory.replace(/\/+$/, '')
+            : _virtualCwd.replace(/\/+$/, '') + '/' + directory.replace(/\/+$/, '');
     }
 }
 
+/**
+ * Returns the current virtual CWD.
+ * Exported so the fs polyfill can resolve relative paths against it.
+ */
+export function getCwd(): string {
+    return _virtualCwd;
+}
+
 const process = {
     /**
      * Environment variables
@@ -102,17 +124,20 @@ const process = {
     },
 
     /**
-     * Returns the current working directory
+     * Returns the current virtual working directory.
+     * Backed by in-process state, same as CPython's WASI libc.
      */
     cwd(): string {
         return getCwd();
     },
 
     /**
-     * Change directory (not supported in WASI)
+     * Change the virtual working directory.
+     * Affects all relative path resolution in the fs polyfill.
+     * Does not perform any real syscall — mirrors CPython WASI behaviour.
      */
     chdir(directory: string): void {
-        throw new Error('process.chdir() is not supported in WASI environment');
+        setCwd(directory);
     },
 
     /**
diff --git a/crates/capsule-sdk/python/pyproject.toml b/crates/capsule-sdk/python/pyproject.toml
index bfb15d4..e4723c9 100644
--- a/crates/capsule-sdk/python/pyproject.toml
+++ b/crates/capsule-sdk/python/pyproject.toml
@@ -4,7 +4,7 @@ build-backend = "setuptools.build_meta"
 
 [project]
 name = "capsule"
-version = "0.8.0"
+version = "0.8.5"
 description = "Capsule Python SDK - run AI agent tasks in secure WASM sandboxes"
 readme = "README.md"
 requires-python = ">=3.10"
diff --git a/crates/capsule-sdk/python/src/capsule/socket.py b/crates/capsule-sdk/python/src/capsule/socket.py
index 431a15e..137df43 100644
--- a/crates/capsule-sdk/python/src/capsule/socket.py
+++ b/crates/capsule-sdk/python/src/capsule/socket.py
@@ -144,9 +144,6 @@ def _execute_http_request(self):
             request_str = self._send_buffer.decode('utf-8', errors='replace')
             method, url, headers_dict, body = self._parse_http_request(request_str)
 
-            # Remove Accept-Encoding so the Rust host fetches plain text.
-            # The host always returns a decoded body; keeping this header would
-            # return compressed bytes that the client would try to decompress again.
             headers_dict.pop('Accept-Encoding', None)
             headers_dict.pop('accept-encoding', None)
 
@@ -278,7 +275,6 @@ class SSLContext:
 
     def __init__(self, protocol=None):
         self.protocol = protocol
-        # Attributes read/written by urllib and http.client
         self.check_hostname = True
         self.verify_mode = 2        # ssl.CERT_REQUIRED
         self.post_handshake_auth = False
@@ -339,7 +335,6 @@ def socketpair(family=SocketShim.AF_INET, type=SocketShim.SOCK_STREAM, proto=0):
 
 def getaddrinfo(host, port, family=0, type=0, proto=0, flags=0):
     """Get address info (simplified for HTTP/HTTPS)."""
-    # Return a minimal valid response
     family = family or SocketShim.AF_INET
     type = type or SocketShim.SOCK_STREAM
     return [(family, type, proto, '', (host, port))]