• Copilot Chat Extension Version: 1.387.0
• VS Code Version: Version: 1.106.0-insider (user setup) - Commit: b409152
• OS Version: windows 11 latest
• Feature (e.g. agent/edit/ask mode): agent
• Selected model (e.g. GPT 4.1, Claude 3.7 Sonnet): gpt5-mini

Steps to Reproduce:

1. install fresh vscode-insider (make sure there is no left over from previous vscode-insider in .vscode-insiders folder, or AppData/Local/.../Visual Studio Insider or AppData/Roam/../Code-Insider folders)
2. open a folder
3. create test.py
4. open test.py
5. install the latest stable python extension and pylance extension.
6. confirm pylance extension version is 2025.9.1
7. open "Python Language Server" output in output tab
8. confirm mcp server is started - "Starting Mcp server id:xxx"
9. click tool button in the copilot agent chat box
10. pylance mcp server is not selected

if you do exact same step in vscode stable (Version: 1.105.1 (user setup)) it works as expected.