https://github.com/microsoft/vscode/wiki/Virtual-Workspaces
Based on the above information, extension will either work or not work in virtual workspaces.
As Jupyter notebooks are very popular we would want users to be able to open them in virtual workspace.
Unfortunately based on the information is not possible to have an extension run in a model where it can run partially in virtual workspace.
Works it be possible to have a separate entry point for extensions or a extension context flag that tells the extension whether it's running in a virtual workspaces.
@rebornix /cc