for me it sounds more like legal ass covering than close sourcing vscode, so nobody can sue them for collecting telemetry or autoupdating, etc
The telemetry extension is open source too: https://github.com/Microsoft/vscode-extension-telemetry
And you can unpack the source for the distributed electron bundle yourself: https://medium.com/how-to-electron/how-to-get-source-code-of...