VS Code 1.122: Chat still requires sign-in when using a configured OpenAI-compatible local network model in VSCode Portable Mode

[BreathBlush]

Does this issue occur when all extensions are disabled?: Yes

• VS Code Version: 1.122.1
• OS Version: windows server 2019

Description

After updating to VS Code 1.122.1, the release notes indicate support for offline usage with local or LAN-hosted models.

I configured a custom OpenAI-compatible model endpoint and the model appears to work correctly. For example, sending a simple prompt such as hello returns a valid response.

However, when I ask the model to perform a Chat task (for example, "write a simple Python script"), VS Code shows a message indicating that I need to sign in before Chat can be used.

Steps to Reproduce:

1. Install VS Code 1.122.1 (Windows x64 Portable).
2. Enable portable mode by creating a data folder in the VS Code root directory.
3. Configure a custom OpenAI-compatible model endpoint.
4. Verify the model responds successfully to a simple prompt such as hello.
5. Ask the model to generate a simple Python script.

Expected Behavior

The configured OpenAI-compatible local network model should be used for Chat requests without requiring a Microsoft/GitHub sign-in.

Actual Behavior

Simple prompts work, but Chat requests trigger a sign-in requirement instead of using the configured model.

Additional Notes

This is a restricted environment, so I am unable to provide screenshots. The issue is consistently reproducible with the setup described above.

[dmitrivMS]

@BreathBlush Does this repro on 1.123.0?

[vs-code-engineering]

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Happy Coding!

[BreathBlush]

@BreathBlush Does this repro on 1.123.0?

Thanks for the suggestion. I tested again with the latest version VSCode-win32-x64-1.124.0-insider.zip

The behavior has changed, but the issue still exists.

After configuring the same OpenAI-compatible LAN model endpoint, I opened Chat and entered a simple prompt such as hello. Instead of returning a response, the Chat UI remains stuck on:

Activating MCP extensions...

The loading indicator keeps spinning indefinitely and no response is ever generated.

Additional information:

Latest VS Code version: VSCode-win32-x64-1.124.0-insider
Windows x64 Portable
No extensions installed
Portable mode enabled via a data folder in the VS Code root directory
Custom OpenAI-compatible model endpoint
Restricted/offline environment

Unfortunately, I cannot provide screenshots due to the restricted environment, but the issue is consistently reproducible.

[quasoft]

Have same issue, worked once after setup, even performed a task that required using tools (creating new file). Several minutes later it started requesting login on every message.