[BUG] Scrolling terminal in powershell and VScode extension, broken formatting

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 powershell terminal scrolls and has broken formatting.

<img width="1884" height="1120" alt="Image" src="https://github.com/user-attachments/assets/794e9143-71ff-4fe7-bb87-a0fc15f174a0" />

<img width="1900" height="1135" alt="Image" src="https://github.com/user-attachments/assets/921c0f02-2c2a-4233-b85b-2ad2c208bbb9" />

What Should Happen?

Normal behavior and formatting, i.e. useful.

Error Messages/Logs

Steps to Reproduce

Use claude code...

Claude Model

Not sure / Multiple models

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

1.0.120

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

PowerShell

Additional Information

_No response_