[BUG] Thinking block no longer visible in VS Code extension

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?

After the latest update, the "Thinking" block is no longer visible/expandable in the Claude Code VS Code extension. Previously, there was an option to expand and view the model's thinking process.

Environment

• Extension version: latest (2.1.170)
• Model: Opus 4.8 (1M context)
• Effort level: High
• IDE: VS Code
• OS: macOS

What Should Happen?

The thinking process should be visible and expandable as a collapsible "Thinking" block in the Claude Code VS Code extension panel, allowing the user to inspect the model's reasoning before the final response — as it worked in previous versions of the extension.

Error Messages/Logs

Steps to Reproduce

1. Open Claude Code in VS Code
2. Set model to Opus 4.8
3. Set effort level to High
4. Send a prompt
5. Thinking block does not appear

Claude Model

Opus

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

4.8

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

iTerm2

Additional Information

_No response_