[BUG] VS CODE Extension Improper Error Handling For Long Conversations

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 the context gets too long in the extension, it just says "Conversation too long" and refuses to do anything else. When I open Claude Code I get the correct message ⎿ Context low · Run /compact to compact & continue

but this also points to auto compact not working? Either way this shouldnt be happening. The message is unclear as to what to do. and now that the model switcher isn't working in the vs code extension, theres no real way to deal with this except for moving to the terminal ui

What Should Happen?

Auto compact should work and it should actually show the right message prompting the user to run /compact just as it does in the terminal ui

Error Messages/Logs

Steps to Reproduce

make a long conversation where context is at its limit

Claude Model

None

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

2.0.1

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

Terminal.app (macOS)

Additional Information

_No response_