Are these the only reasons you have problem with it being closed source?
I'll happily use the closed source version when MS is developing who can handle 4 digit number of issues and likely to fix issues you care about and more.
If someone black lists your SSH server publicly, you seem to have a bigger problem than an extension being closed source.
It's totally fine for other people to be fine with the trade off, but for me VSCode is an incremental gain, not a huge absolute one -- maybe it will have some killer feature (or more likely some partner/employer will force it on me because it's the current zeitgeist and because of some custom plugin) that I'll need someday, but that day is not today.
The bigger risk is that MS would start selling your usage without you even knowing, don't forget it's an advertising company as well.
Vendor lock-in is what i would see as bad-faith actor's action. A product being good should be the only lock-in required.
But I am also not a full on fanatic -- the world is gray, not black & white (for me at least). Since I am familiar with popular good open source tooling in this space, I'm surprised others who might feel the same might compromise at this particular junction, and that was my knee jerk reaction.
I can't say I do as much for the F/OSS community as others out there do but I donate to the authors of the tools I use, the EFF, and Letsencrypt (the amount of value they deliver is insane) from time to time.
I'm having trouble with the question, it sounds like it's equivalent to "why bother open sourcing useful, currently-working software X", and that's just the "why is open source good" question, right?
I can somewhat understand WSL being closed source -- maybe it's got some proprietary MS stuff in there that is legally restricted, or they just don't want people using the interfaces they used? But tools like SSH grow because they're open source, not because they're closed, seems somewhat misplaced there.