see that the file browser does not recognize the new file that was created.

This should work. Does it never see the new file? Even if you use vim or echo 'foo' > file.txt?

This set of extensions I have seems to cause this.
Maybe it causes the open-files / file handle limit to be reached for watching folders or w/e

But even though. A file should never be overwritten by a create-file dialogue.

Maybe it causes the open-files / file handle limit to be reached for watching folders or w/e

Have you boosted the file watch limit? https://code.visualstudio.com/docs/setup/linux#_error-enospc

Well I could, but why should I and it still is unrelated to the issue. It should be impossible to overwrite an existing file. And moving this into a different layer and blocking the function from being called is not the right solution tbh.

It will stay racy and it's bad design.

@bpasero do we do a file check before creating a few or do we rely on the file watcher giving us an accurate tree?

createFile is just creating the file which is not good, we should check if the file exists and maybe provide an option to override the file if it exists.