Remote-SSH to Docker container fails with ServerNotExecutable in 1.127, works fine in 1.126

Type: Bug

Description

After updating VS Code to 1.127, connecting via Remote-SSH to a Docker container fails during server installation with a ServerNotExecutable error. Downgrading the client to 1.126 immediately resolves the issue with no other changes made.

Steps to Reproduce

1. Update VS Code client to 1.127
2. Open a Remote-SSH connection to a host that is a Docker container (SSH server running inside the container)
3. Attempt to open a folder/repo in the remote window

Expected Behavior

VS Code Server installs and starts normally, as it did on 1.126.

Actual Behavior

Connection fails with:

Failed to connect to the remote extension host server (Error: CodeError(ServerNotExecutable("/home/myid/.vscode-server/cli/servers/Stable-4fe60c.../server/bin/code-server is not executable and permissions could not be restored: No such file or directory (os error 2)")))

Workaround

Rolling back the VS Code client to 1.126 resolves the issue completely with the same remote environment and no other changes.

Environment

• Client VS Code Version: 1.127 (issue), 1.126 (working)
• Client OS: macOS 26.5.1 (Apple Silicon)
• Remote-SSH Extension Version: 0.124.0
• Remote OS/Environment: Linux, SSH target is a Docker container (not bare metal/VM)
• Remote root filesystem: overlay2 (Docker overlay), mounted rw,relatime — confirmed not noexec
• Remote disk space: confirmed sufficient (54% used, 1.5T available)

Troubleshooting already done

• Confirmed target mount is not noexec (mount | grep " / ")
• Confirmed sufficient disk space on both / and ~ (overlay filesystem)
• Issue reproduces consistently on 1.127, does not reproduce at all on 1.126 with identical remote container

Additional context

This looks like it may be related to the VS Code Server installation/permission-setting logic changing between 1.126 and 1.127, possibly interacting differently with Docker's overlay2 filesystem semantics (permission bits on layered/overlay filesystems can behave differently than on regular filesystems, even without noexec). Happy to provide the full Remote-SSH log (Remote-SSH: Show Log) if useful.

Reproduce the failure by comparing VS Code 1.127 with 1.126 against the same Docker SSH target, then inspect the Remote-SSH installation and permission-setting behavior on the overlay2 filesystem. Use the Remote-SSH: Show Log output to narrow the ServerNotExecutable error; done when the server installs and the remote window opens successfully on 1.127.