Automatic managed-settings refresh breaks IDE MCP reload and disables /allow-all

Describe the bug

In a long-running Copilot CLI session connected to Visual Studio Code, an automatic managed-settings refresh can fail while reloading the dynamically contributed IDE MCP server:

Failed to enforce managed Computer Use policy: failed to reload Computer Use
plugin contributions for session '<redacted>':
MCP reload failed: mcpServers.ide.type: Invalid literal value

After this failure, the session enters a fail-closed permission state even though the resolved enterprise policy does not disable permission bypass. /allow-all and /yolo can no longer be enabled, and every tool call requires approval. Restarting Copilot CLI restores normal behavior.

This has occurred in multiple long-running sessions.

Affected version

GitHub Copilot CLI 1.0.84-6

The installed binary has since updated to 1.0.84-8; the failure has not yet been reproduced there.

Steps to reproduce the behavior

1. Start Copilot CLI on Windows from a VS Code-integrated environment.
2. Enable /allow-all or /yolo.
3. Keep the session active until the automatic managed-settings refresh runs.
4. Observe the IDE MCP graph reload fail with mcpServers.ide.type: Invalid literal value.
5. Run /allow-all or /yolo again.
6. Observe that permission escalation is rejected and subsequent tool calls prompt individually.
7. Restart Copilot CLI.
8. Observe that permissions and MCP tools work normally again.

The failure may be timing-dependent. In the captured occurrence, it happened exactly one hour after the CLI process started.

Expected behavior

The periodic managed-settings refresh should accept the IDE-provided MCP transport configuration and preserve the existing MCP graph. If applying refreshed settings fails, a policy that explicitly allows bypass permissions should not be replaced by the restrictive "policy undetermined" state for the lifetime of the process.

Additional context

• OS: Microsoft Windows 10.0.26200, x64
• Shell: PowerShell 7.6.6
• IDE: Visual Studio Code
• No user-defined mcpServers existed in the CLI config.json or settings.json.
• The IDE bridge was registered through a Windows named pipe.
• Sanitized log sequence:

[managedSettings] effective policy resolved:
  source=mdm, bypassDisabled=false, serverFetchFailed=false
[managedSettings] applied: no bypass restriction in force
mcp graph load: reload {"force":true}
[managedSettings] applied: bypass-permissions mode DISABLED
  (fail-closed: policy could not be determined)
[managedSettings] self-fetch errored:
  MCP reload failed: mcpServers.ide.type: Invalid literal value
Managed Computer Use plugin activation remains unreconciled {"attempts":3}

The public MCP configuration types are local/stdio and http/sse. This looks like a transient IDE bridge transport value (possibly the named-pipe transport) is being passed through generic MCP configuration validation during the forced reload.

Start by tracing the automatic managed-settings refresh and forced MCP graph reload in the Windows VS Code-integrated CLI, using the reported mcpServers.ide.type: Invalid literal value sequence. Compare behavior between versions 1.0.84-6 and 1.0.84-8 and reproduce with /allow-all or /yolo enabled. Done means the IDE MCP configuration reloads successfully and an allowed bypass policy is not replaced by the fail-closed state.