[BUG] [Windows] VS Code extension crashes on launch - MCP server "claude-vscode" error -32601: Method not found

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?

The VS Code extension crashes immediately on every launch with "Host Extension has terminated." The built-in MCP server starts on localhost, but when the Claude Code binary calls tools/list on the claude-vscode MCP server, it fails with:

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

This triggers SessionEnd, kills the Claude process, and crashes the extension host. The extension restarts and repeats the crash loop. A new random port each attempt confirms a fresh server each time. Sometimes 2-3 Claude instances spawn simultaneously.

What Should Happen?

What Should Happen?
The extension should start normally. The built-in claude-vscode MCP server should respond to tools/list without error.

Error Messages/Logs

Key observation: The CLI (npm install -g @anthropic-ai/claude-code) works perfectly with the same project and config directory. The crash is isolated to the VS Code extension's built-in MCP server handshake.
<details><summary>Log snippet</summary>

2026-02-16 09:41:08.170 [info] From claude: [ERROR] MCP server "claude-vscode" Failed to fetch tools: MCP error -32601: Method not found
2026-02-16 09:41:08.220 [info] From claude: Getting matching hook commands for SessionEnd with query: other
2026-02-16 09:41:08.245 [info] From claude: LSP server manager shut down successfully

</details>

Steps to Reproduce

Steps to reproduce:

Install claude-code extension v2.1.42 on Windows
Open any project folder
Extension activates, MCP server starts on localhost
Claude binary spawns and calls tools/list on claude-vscode MCP server
MCP error -32601
SessionEnd → extension host terminates
Crash loop repeats

Claude Model

Opus

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

2.1.42 (VS Code extension)

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

PowerShell

Additional Information

_No response_