[BUG] Title: "Panel (New Tab)" option in preferredLocation setting does not work

Preflight Checklist

• [x] I have searched existing issues and this hasn't been reported yet
• [x] This is a single bug report (please file separate reports for different bugs)
• [x] I am using the latest version of Claude Code

What's Wrong?

When I select "Panel (New Tab)" from the dropdown, Claude Code opens in the right sidebar instead of as an editor tab. I want it to open as a tab in the editor area (next to my file tabs), which is possible when I manually drag the panel there, but there's no setting to make it open that way by default.

What Should Happen?

When I select "Panel (New Tab)", Claude Code should open in the editor area as a tab (next to my file tabs like PROXY-BACKEND.md), not in the right sidebar. Since I can manually drag it to become an editor tab, this functionality should be available as a default setting.

Error Messages/Logs

Steps to Reproduce

1. Open VS Code Settings (Ctrl+,)
2. Search for "Claude Code: Preferred Location"
3. Click the dropdown - three options appear: "sidebar", "panel", and "Panel (New Tab)"
4. Select "Panel (New Tab)"
5. Close and reopen Claude Code
6. Result: Claude Code opens in the right sidebar, NOT as an editor tab

Note: I can manually drag the Claude Code panel to the editor area to make it a tab, but there's no setting to make it open there by default.

Claude Model

Sonnet (default)

Is this a regression?

No, this never worked

Last Working Version

_No response_

Claude Code Version

Claude Code for VS Code v.2.1.1

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

Windows Terminal

Additional Information

_No response_