VSCode: claudeCode.useTerminal setting is ignored, always opens in new experience

Bug Description

The claudeCode.useTerminal setting is set to true in VSCode settings, but Claude Code still opens in the new experience (webview/panel) instead of the integrated terminal.

Settings

"claudeCode.preferredLocation": "panel",
"claudeCode.useTerminal": true

claudeCode.useTerminal: true is being ignored. Claude Code always starts in the panel/webview regardless.

Note: claudeCode.preferredLocation does not accept "terminal" as a value, so there's no way to force terminal mode through that setting either.

Expected Behavior

When claudeCode.useTerminal is true, Claude Code should launch in the integrated terminal, not in the webview/panel experience.

Environment

• macOS (Darwin 24.6.0)
• VSCode with Claude Code extension
• Model: Opus