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Does this mean all the engineers are forced to VS Code now?

No, the article pointed out that vim and Emacs users can ssh into the hosts and edit code there. No VS Code use required

New developers will get in using vscode web ide, and have no easy way to switch.

There are lot more IDEs other than VsCode, vim and Emacs

No doubt. I use JetBrains' suite of tools and I wonder how this squares up with Codespaces