VS Code Extension: MCP server claude-vscode error and terminal relaunch requests cause extension to freeze

Environment

• Claude Code version: 2.1.17
• VS Code version: Latest
• OS: Ubuntu Linux 6.14.0-37-generic
• Platform: linux-x64

Problem Description

Issue 1: MCP Server Error

Every session start triggers the following error:

MCP server "claude-vscode" Failed to fetch tools: MCP error -32601: Method not found

This error occurs after SessionStart hook execution and may cause the extension to freeze/become unresponsive.

Issue 2: Terminal Relaunch Requests

The Claude Code extension repeatedly requests terminal relaunch even when claudeCode.useTerminal: false is set.

VS Code settings terminal.integrated.environmentChangesRelaunch: false and terminal.integrated.environmentChangesIndicator: "off" do not suppress this.

Steps to Reproduce

1. Open VS Code with Claude Code extension
2. Start a new Claude Code session or switch between sessions
3. Observe MCP error in extension logs
4. Open a terminal - relaunch request appears

Expected Behavior

• MCP server should not produce "Method not found" errors
• Terminal relaunch requests should respect VS Code settings or not appear when claudeCode.useTerminal: false