As a general notion as you decrease the voltage linearity should degrade. But when constant filed scaling is considered and it can be thought that (vgs- vt) is constant for both technology then linearity should not be much affected.

There are many ways to explain linearity in conjuction with source degeneration. like feedback and gm-linearity. I will try to explain in a simpler way, may be that will do.

If u have a source degenerated common source configuration then source node approximately follows that gate voltage that mean u'll have approximately Vgs acroos the degenration resistor or inductton. this will create a current Vgs/R(impedanc eof source resistor). So now ur drain current is pretty linear in conjuction with Vgs. Now it is just Vgs/R whereas previously it was foloowing a square law characteristic. Further u can also prove that now Gm of the amplifier has become a constant (1/R).. previously it was a fucntion of vgs.

So i think this will explain the linearity issue.