It is a shame that the team never prioritized extension permission issues [0] despite their big boss said security is the top priority [1]. All they have is "workspace trust" and various other marginally useful security measures.
I don't install a VSCode extension unless it is either official or well known and audited and I have to use it. I keep most of them disabled by default unless I need something for a project. (Even if you don't care about security, it's good for VSCode performance. I'll save that story for another day.)
[0] https://github.com/microsoft/vscode/issues/52116
[1] https://blogs.microsoft.com/blog/2024/05/03/prioritizing-sec...