First of all every division at Microsoft needs to be cash positive. At DevDiv (developer devision) the main bread maker is Visual Studio. .NET is free and makes no money. VS Code is free and makes no money. OmniSharp is/was free and made no money. ASP.NET is free and makes no money. It's mostly SQL and Visual Studio licenses which pay the salaries of the .NET team. For that reason Microsoft can never let it happen that a free and open .NET extension can make VS Code a good enough experience for the vast majority of .NET developers. It's not by accident that despite Microsoft owning C#, .NET, VS Code and OmniSharp the C# experience on VS Code was the worst of its kind in comparison to any other programming language. It's by choice in order to push developers to use Visual Studio.
Another big reason is that Microsoft needs to keep a tight grip around their .NET developers, because .NET is the main driver to Azure adoption. Azure is an extremely unattractive product to any other development community. Azure is slow, it breaks, it over promises and under delivers and it is almost twice as expensive to AWS or GCP once you actually establish feature parity. It's mainly .NET devs who get cleverly pushed to Azure and siloed away from anything non-Microsoft by Microsoft. The world runs in the cloud nowadays and the cloud is a unix based environment. Microsoft has felt the bleed of its traditional Windows centric developer base migrating away to macOS and Linux and becoming more wise about their technology choices. In order to stop the bleed Microsoft tries hard to convince its remaining Windows developers to remain in the Windows/Azure silo by giving them just enough sugar coating so they never step outside. WSL, the new unix-like terminal in Windows, Windows containers, etc. are all attempts to keep Windows folks on Windows and therefore closer to Azure.
The irony with all of this is of course that if you are a software developer, you'll have a MUCH MUCH better experience with Microsoft owned products (GitHub, VS Code, etc.) if you choose any programming language which is NOT .NET, because (at least for now) they will not try to come after you to lock you into their Windows/Azure based silo.