Sort of. The core is, and the installable binaries with telemetry and properietary extensions are not.
The open source, telemetry-free version of VSCode is called VSCodium: https://vscodium.com/
> Didn't cusor fork it and is building it features directly into the fork?
Yes, in their recent interview with Lex Fridman they argued that life as an extension is too limiting.
The main reason we criticise Microsoft for doing this and not them is just their size and market dominance.
Why jump through hoops to make competitors better able to hotwire their own AI into VSCode, or hotwire Copilot into their own IDE, when it's easier to iterate fast and remain unpredictable?