Updating workspace via VS Code fails

Here are the logs from the Coder VS Code output panel when I try to update my workspace via the "Update workspace" button in VS Code:

```
2026-08-25 13:49:18.543 [info] [session 3c5e933a] Updating kevin/workstation {"status":"running"}
2026-08-25 13:49:20.446 [info] [session 3c5e933a] Workspace kevin/workstation state changed {"from":"running","to":"stopping","transition":"stop","reason":"initiator"}
2026-08-25 13:49:20.446 [info] [session 3c5e933a] Workspace kevin/workstation agent removed
2026-08-25 13:49:35.695 [info] [session 3c5e933a] Workspace kevin/workstation state changed {"from":"stopping","to":"stopped","transition":"stop","reason":"initiator"}
2026-08-25 13:49:41.967 [info] [session 3c5e933a] Workspace kevin/workstation state changed {"from":"stopped","to":"starting","transition":"start","reason":"ssh_connection"}
2026-08-25 13:49:49.480 [warning] [session 3c5e933a] Update failed for kevin/workstation: "--global-config /Users/kevin/Library/Application Support/Code/User/globalStorage/coder.coder-remote/coder.stackav.io update kevin/workstation" exited with code 1: Encountered an error running "coder update", see "coder update --help" for more information
error: Trace=[start workspace: create workspace build: ]
A workspace build is already active.
A workspace build is already active.
```

The workspace does restart but ends up still running the same (non-updated) template version. Updating the workspace on the Coder website works fine as a workaround.

This is on macOS using the Coder VS Code extension version 1.16.1 in VS Code version 1.134.0 (Universal). We're running Coder v2.35.3 on the server.

I found https://github.com/coder/vscode-coder/issues/972 but I'm not sure if it's the same issue. The workspace template I am using does use dynamic parameters with one of the mentioned conditions (`A parameter only appears for certain combinations of other inputs (the static rich-parameters list does not include it).`).

Start by reproducing the failure with the VS Code extension's “Update workspace” button and compare it with the working website update path. Trace the extension's `coder update` invocation and its handling of dynamic parameters, using the provided logs and issue 972 as context. Done means the update completes without the “workspace build is already active” error and the new template version runs.

Written by the indexing model from the issue text.