Cannot select a new target folder in "Move & redirect"

### Description

Using "Move & redirect",

1) I'm not able to select a new target folder becuase a) there's no option to "create new" and b) when I manually create a new folder in VScode, the new folder isn't showing in the list.

2) I cannot select a folder to move. I've got about 350 I want to restructure, and it would be beyond awesome if I could drag and drop files and folders, and VScode/CM detected the new locations and created the redirects for me.

### Issue Details

Item|Value
---|---
Issue Category|Bug
Target|Visual Studio Code
VS Code Version|Code 1.138.0 (7debcd0e2acdea1c52de81bf9ee1620444407dda, 2026-09-15T07:24:32Z)
OS Version|Windows_NT arm64 10.0.26200

System Info

Item|Value
---|---
VS Code Version|Code 1.138.0 (7debcd0e2acdea1c52de81bf9ee1620444407dda, 2026-09-15T07:24:32Z)
OS Version|Windows_NT arm64 10.0.26200
CPUs|Snapdragon(R) X 12-core X1E80100 @ 3.40 GHz (12 x 2976)
GPU Status|2d_canvas: enabled
GPU0: VENDOR= 0x4d4f4351, DEVICE=0x36334330 [Qualcomm(R) Adreno(TM) X1-85 GPU], DRIVER_VENDOR=Qualcomm, DRIVER_VERSION=31.0.133.1 *ACTIVE*
GPU1: VENDOR= 0x1414, DEVICE=0x008c [Microsoft Basic Render Driver], DRIVER_VERSION=10.0.26100.9278
Machine model name:
Machine model version:
direct_rendering_display_compositor: disabled_off_ok
gpu_compositing: enabled
multiple_raster_threads: enabled_on
opengl: enabled_on
rasterization: enabled
raw_draw: disabled_off_ok
skia_graphite: disabled_off
trees_in_viz: disabled_off
video_decode: enabled
video_encode: enabled
webgl: enabled
webgpu: enabled
webnn: disabled_off
Load (avg)|
Memory (System)|31.57GB (13.41GB free)
Process Argv|C:\GitHub Source\enduser-surface-pr --crash-reporter-id 4a52a35d-cff7-47c5-88f5-afc18e2ad8e0
Screen Reader|no
VM|0%
User Agent|Mozilla/5.0 (Windows NT 10.0) AppleWebKit/537.36 (KHTML, like Gecko) Code/1.138.0 Chrome/148.0.7778.280 Electron/42.10.0 Safari/537.36
Installation pure|true

Extensions (12)

Name|Identifier|Author|Version
---|---|---|---
markdownlint|davidanson.vscode-markdownlint|DavidAnson|0.62.1
learn-article-templates|docsmsft.docs-article-templates|docsmsft|1.0.8
Learn Authoring Pack|docsmsft.docs-authoring-pack|docsmsft|1.0.3
learn-images|docsmsft.docs-images|docsmsft|1.0.5
learn-markdown|docsmsft.docs-markdown|docsmsft|1.0.18
learn-preview|docsmsft.docs-preview|docsmsft|2.0.13
learn-scaffolding|docsmsft.docs-scaffolding|docsmsft|1.0.9
learn-yaml|docsmsft.docs-yaml|docsmsft|1.0.6
Microsoft Learn Authoring Assistant|docsmsft.learn-authoring-assistant|docsmsft|1.1.6
.NET Install Tool|ms-dotnettools.vscode-dotnet-runtime|ms-dotnettools|3.1.0
Content Mentor|msft-content.content-mentor|msft-content|1.25.2
YAML|redhat.vscode-yaml|redhat|1.24.0

Theme extensions: 9

A/B Experiments

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ahp-both-windows:31556933
ihg5j128:31534457
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allow-none:31555437
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mangle-name-treatment:31572634
signed-out-control:31584138
intellij_nes_preview_t:31580086
39a5d156:31574986
2bfb8b39:31585911
outline:31581109
aw-autom-on:31583758
revealsession_control_7ed7e840:31582193
7g328426_fixed:31584544
codex-agent-host-stable-control:31585316
0485115c-2712-4002-b6e9-b5d4e30fb963:31586114
permission_prompt_treatment:1294978
ccr_pr_nudge_control:1319470
vsc_wsm_t:1340632
h5e14506:1348996
g03gg798:1394297
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```

### Attachments


Reproduce the "Move & redirect" workflow in VS Code, checking both the missing "create new" action and whether newly created folders appear in its folder list. Define done as being able to create and select a target folder and move items with redirects; treat drag-and-drop restructuring as a separate scope decision.

Written by the indexing model from the issue text.