Fair comment. I struggle to categorize VSC in the Editor-IDE spectrum, and it may simply be a matter of market positioning. But let me take a stab at it.

The way I've seen VSC used in the wild is as a highly customizable IDE. Yes, it can be used as a minimal text editor. But it seems to want to be more than that. I've yet to see anyone using it that weren't also using it as a terminal and a bug checker and git manager and and and...

By contrast, most ST users (again, based on personal experience, I could be statistically way off) use it as a pure text/code editor, with plugins to help with code completion and such. ST can be extended, but it doesn't much care whether you choose to extend it or not. Using VSC without plugins just feels... weird, somehow? Like I'm missing the point of it?

As for whether ST can compete with VSC, I don't think it should compete. They're each appropriate for different situations. They do overlap more than any other ST "competitor", granted, but I think there are situations where VSC is the better choice, some where ST is better, and some where a full-blown IDE is the best way to go.

When the situation calls for a really great text editor, ST is, in my experience, the fastest and most productive way to go.

I think the shift from ST to VSC is due to the fact that many (most?) developers actually want an IDE, but just don't like the other ones on the market.

VS Code has never been sold to me as a lightweight text editor and I've only ever seen it coupled with atrocities of plugins for "developer productivity" that equates to do it the way the wizard in the corner created their environment to enforce or else feel their impotent wrath on your PRs.