This is correct behaviour and you shouldn't try to override it as you
describe below.
WIth it set, it cannot find xproto, or many other
packages. Without it set, pkg-config works like a charm.
I should have been more specific. Running the .work/tools/bin/pkg-config
script fails to detect xproto. Running /usr/pkg/bin/pkg-config detects it
fine. Installed version of xproto is 7.0.24nb1. libFS configure reports
requiring >= 7.0.14.
Suggestions on where to start digging? I'm not particularly familiar with
the internals of pkgsrc, so I'm in the dark.