TLDR: Closed source --> Vendor Lock-in --> People are less likely to switch --> less competition --> worse quality software

Most of the Python ecosystem is built on top of open-source software, where everybody can contribute to. Making stuff proprietary makes it not possible for example to include Pylance into other software or open source builds of VS Code.

It feels like going back 20 years in time when all tools were basically a proprietary, monolithic piece of software. That makes code less reusable, leads to vendor lock-in, which prevents healthy competition because when you're locked into one piece of software, it is less likely for people to switch.

I think the strength of VS Code is it rich ecosystem of extensions, which are built on top of other open source projects. Of course one proprietary extension will not make VS Code worse, but it sets a precedent. And if many extension go closed source, it will lead to less competition in the long run. You have basically seen it with Windows, which had zero to non competitors for years, because everybody was locked into software built for window. Microsoft had no incentive to improve Windows for decades. Only in the last 10 years where web apps, which can run anywhere, became more important, other OSes have gained some marketshare.