Why not sshfs? Been using that for ages, since before VSCode existed. Is it suddenly broken?
In my team this allowed us to setup a consistent dev environment where everyone has access to the same specs, same environment, easy to manage access control sensitive systems from that remote machine on forward etc... sshfs or using sftp that many of the older IDEs did, don't come close to making it so seamless.
The nice thing about vscode remoting design is that it’s not that. Even on a high-ish latency ssh connection, the editor buffers are local and the editor UX as a whole is local on your machine so things are still relatively smooth despite high pings on remote connections. Even with vim running in an ssh session, you’ll have a bad time when your latency is high. I know MOSH supposedly helps with that, but I had annoying issues with that too.
sshfs solves the laggness problem, but you are just mounting a remote file system while using your local machine for the build. VNC/RDP/SSH lets you use the remote machine resources for build, but you have to deal with the lag. Vscode remoting lets you use the local machine for the editor UX, and the remote machine resources for LSPs, debuggers, build, etc. yes the protocol doesn’t give you isolation between the 2 machines, but not sure it ever claimed that. I use it from my very under-powered laptop to keep all the heavy builds on a beefy desktop machine with an abundance or resources.