[BUG] Claude Code setting Use Terminal does not open Claude in my integrated terminal

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?

In the latest version v2.0.21, the Use Terminal setting does not work correctly compared to the previous version (2.0.17 works correctly).

It should open Claude Code inside my VSCode integrated terminal instead of opening it in a new tab (Locked group)

What Should Happen?

It should open Claude Code inside my VSCode integrated terminal instead of opening it in a new tab (Locked group)

Error Messages/Logs

Steps to Reproduce

1. Open VSCode
2. Click the Claude button on the top right

Claude Model

None

Is this a regression?

Yes, this worked in a previous version

Last Working Version

2.0.17

Claude Code Version

2.0.21

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

VS Code integrated terminal

Additional Information

_No response_