Local MCP server in VS Code stops working & “Registry” lock becomes editable from v1.109.2+

[rsys-vmadasu]

Describe the bug
After updating to VS Code v1.109.2 (and above), our locally hosted MCP server (used via VS Code) stopped working despite no config changes. Additionally, a previously locked “Registry” setting (maintained by org policy) is now user-editable, which breaks our managed configuration and allows users to switch away from the organization registry.
This worked as expected in prior versions: the MCP server connected and the registry setting was enforced/locked by policy.
This appears to be a regression introduced in v1.109.2+.

To Reproduce
Steps to reproduce the behavior:
Install/update VS Code to v1.109.2 or later.
Use a workstation where org policy enforces the MCP Registry setting (previously locked).
Open a workspace with a local MCP server configured (see example config).
Observe:

Registry setting is now editable.
Local MCP does not initialize/connect (features relying on MCP fail).

Downgrade VS Code to a pre‑1.109.2 version.
Observe:

Registry setting returns to locked.
Local MCP connects/works again.

Expected behavior
VS Code connects to the local MCP server as before.
The MCP Registry setting remains locked (read-only) per org policy and is not editable by end users.

Logs
If applicable, add logs to help explain your problem.

Additional context
Add any other context about the problem here.

[rdimitrov]

Hey @rsys-vmadasu, thanks for flagging! This one's actually on the VS Code side - both the Registry setting lock and the local MCP client connection are handled by VS Code itself, not by the registry service here. Mind re-filing over at https://github.com/microsoft/vscode/issues? They'll be able to dig into the v1.109.2 regression much better than we can.

Closing this out, but feel free to ping if you hit anything that does look registry-side