"Researchers Amit Assaraf and Itay Kruk, who were deploying AI-powered scanners seeking suspicious submissions on VSCode, first flagged them as potentially malicious."
Well flagging as “potentially malicious” seems fine and super useful. Companies just need to have competent investigation of the reports and avoid the dark side of automating action just because it’s cheaper.
Personally I think Microsoft was in the right. Obfuscated code like this shouldn't be in an extension, at least with out a very big warning and a red flag.