claudeCode.useTerminal: true causes editor title bar icon to disappear (v2.1.119, VS Code 1.117)

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 claudeCode.useTerminal is set to true, the Claude Code icon in the editor title bar (top-right, used to open new sessions) disappears
entirely.

Setting it to false immediately restores the icon. The Claude Code: Open in Terminal command still works via Command Palette — so terminal
mode itself is functional, just the icon-driven entry point is broken.

The extension's package.json defines two editor/title menu entries:

• "when": "!config.claudeCode.useTerminal" → claude-vscode.editor.openLast — icon renders ✅
• "when": "config.claudeCode.useTerminal" → claude-vscode.terminal.open — icon does NOT render ❌

Both commands are defined in contributes.commands with icons. The when clause for the true path should show the terminal-open icon but
doesn't.

Additionally, useTerminal: true no longer auto-launches sessions in terminal mode — sessions always open in webview. The setting appears to not
be read at runtime (only in a one-time migration function). Previously this setting was honored and terminal mode launched automatically.

Environment:

• Claude Code Extension: 2.1.119
• VS Code: 1.117.0 (arm64, macOS)
• macOS Darwin 25.4.0 (Apple Silicon)

Related issues: #10224, #10500, #30063, #31561

What Should Happen?

With claudeCode.useTerminal: true:

• The Claude Code icon should appear in the editor title bar (top-right) and open terminal-mode sessions when clicked
• New sessions should auto-launch in terminal mode instead of webview

<img width="1466" height="590" alt="Image" src="https://github.com/user-attachments/assets/872bad59-3ec5-4f47-8c84-ca20eb4369fd" />

<img width="1563" height="809" alt="Image" src="https://github.com/user-attachments/assets/70c0d5a2-5f46-4c75-9262-188f50644a4b" />

Error Messages/Logs

No error messages. The icon silently disappears.

  Extension log shows webview communication even with useTerminal: true:
  "Received message from webview: {"type":"request"...}"

  The extension's package.json declares the icon correctly:
    "command": "claude-vscode.terminal.open",
    "when": "config.claudeCode.useTerminal",
    "group": "navigation"

  But the icon does not render. The command works when invoked manually via Command Palette.s

Steps to Reproduce

Steps to Reproduce:

1. Set claudeCode.useTerminal to true in User or Workspace settings
2. Reload VS Code window
3. Observe: editor title bar Claude icon is missing
4. Set claudeCode.useTerminal to false
5. Reload window
6. Observe: icon reappears (opens webview)

Claude Model

Opus

Is this a regression?

Yes, this worked in a previous version

Last Working Version

2.1.109

Claude Code Version

2.1.119

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

VS Code integrated terminal

Additional Information

<img width="1466" height="590" alt="Image" src="https://github.com/user-attachments/assets/872bad59-3ec5-4f47-8c84-ca20eb4369fd" />

<img width="1563" height="809" alt="Image" src="https://github.com/user-attachments/assets/70c0d5a2-5f46-4c75-9262-188f50644a4b" />