The problems with Conda usually have to do with its activation. If you manually activate whatever environment you want before starting VSCode, it should pick it up fine. But if you don't, and then later you pick a conda environment, it'll try to auto-activate it in the terminal for you - and this part is brittle, because anything else using the terminal can interfere with it (and vice versa).
Yep I think you are right. It does seem to be when VScode tries to auto activate it. This github issue had a solution in the form of adding an empty string for a particular option in settings.json [0]. This fixed it for my mac install. I can't remember what I did on windows to fix it.
