I feel like this would've been better as a VSCode extension. Copilot, Q, Gemini, all were able to take this approach. Also, VSCode isn't considered a full IDE and adding some AI features isn't enough to change that. It seems like they forked VS Code just for the ability to say they "created an IDE" in the same way other projects fork Chromium to "build a browser".
If you really want an integrated experience, and not just a sidebar UI, you need to go the same route as Cursor and fork Code-OSS (the MIT-licensed part of VS Code, analogous to Chromium for Chrome)