[BUG] .mcp.json and project-level MCP servers not detected by VSCode extension on Windows

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 Claude Code VSCode extension on Windows does not detect project-level MCP servers defined in .mcp.json files or project-level MCP server settings. The extension only detects workspace/global servers, so project-specific MCP servers are missing from the server list and cannot be used.

What Should Happen?

The extension should detect MCP servers defined at the project level (in .mcp.json or project settings) on Windows and list them alongside workspace/global servers, allowing selection and usage.

Error Messages/Logs

Steps to Reproduce

1. On a Windows machine, create a project folder containing a .mcp.json file with a project-level MCP server definition, e.g.:

{
  "servers": [
    {
      "name": "project-mcp",
      "url": "https://example-mcp.local",
      "apiKey": "REDACTED"
    }
  ]
}

1. Open the project in VS Code (Windows) and ensure the Claude Code extension is installed and enabled.
2. Open the extension's server selection UI (e.g., "Claude: Select MCP Server" or the extension settings).
3. Observe that the project-level server from .mcp.json is not listed; only workspace/global servers appear.

Claude Model

_No response_

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

unknown

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

WSL (Windows Subsystem for Linux)

Additional Information

Occurs on Windows. No error messages shown in the extension UI. I can provide logs or a sample repository if helpful.