I’m having the same issue right now, can’t figure out why.
In my case I use Docker devcontainers in a remote Ubuntu server:
[1851 ms] Dev Containers 0.394.0 over Remote - SSH 0.113.1 in VS Code 1.96.2 (0781e811de386a0c5bcb07ceb259df8ff8246a50).
[1851 ms] Start: Resolving Remote
[1863 ms] Start: Loading environment from ExecServer
[1933 ms] Host OS: linux 6.8.12-8-pve
[1933 ms] Host CWD: /home/<redacted>
[1934 ms] Start: Run: /bin/sh 
[2122 ms] Start: Run in host: echo ~
[2192 ms] /home/daniel
[2192 ms] 
[2192 ms] Start: Run in host: id -un
[2287 ms] daniel
[2288 ms] 
[2289 ms] Start: Run in host:  (command -v getent >/dev/null 2>&1 && getent passwd 'daniel' || grep -E '^daniel|^[^:]*:[^:]*:daniel:' /etc/passwd || true)
[2367 ms] userEnvProbe: loginInteractiveShell (default)
[2367 ms] userEnvProbe: not found in cache
[2368 ms] userEnvProbe shell: /bin/bash
[2542 ms] userEnvProbe PATHs:
Probe:     '/usr/local/sbin:/usr/local/bin:/usr/sbin:/usr/bin:/sbin:/bin:/usr/games:/usr/local/games:/snap/bin'
Container: None
[2703 ms] Setting up container for folder or workspace: /home/<redacted>
[2704 ms] Host authority: ssh-remote+<redacted>
[2706 ms] Start: Run: wsl -l -v
[2822 ms] Start: Run: wsl -d Ubuntu -e /bin/sh -c echo ~
[5494 ms] Start: Run: wsl -d Ubuntu -e /bin/sh -c cd '/home/daniel' && /bin/sh
[5501 ms] Start: Run in host: id -un
[5558 ms] daniel
[5558 ms] 
[5558 ms] Start: Run in host:  (command -v getent >/dev/null 2>&1 && getent passwd 'daniel' || grep -E '^daniel|^[^:]*:[^:]*:daniel:' /etc/passwd || true)
[5560 ms] Start: Run in host: echo ~
[5561 ms] /home/daniel
[5561 ms] 
[5562 ms] Start: Run in host: test -f '/home/daniel/.cursor-server/cli/servers/Stable-0781e811de386a0c5bcb07ceb259df8ff8246a50/server/node'
[5564 ms] 
[5564 ms] 
[5564 ms] Exit code 1
[5565 ms] Start: Run in host: test -f '/home/daniel/.cursor/cli/servers/Stable-0781e811de386a0c5bcb07ceb259df8ff8246a50/server/node'
[5565 ms] 
[5565 ms] 
[5565 ms] Exit code 1
[5566 ms] Start: Run in host: test -f '/home/daniel/.cursor-server/bin/0781e811de386a0c5bcb07ceb259df8ff8246a50/node'
[5566 ms] 
[5566 ms] 
[5567 ms] Exit code 1
[5567 ms] Start: Run in host: test -f '/home/daniel/.vscode-remote-containers/bin/0781e811de386a0c5bcb07ceb259df8ff8246a50/node'
[5568 ms] 
[5568 ms] 
[5568 ms] Exit code 1
[5568 ms] Start: Run in host: uname -s
[5570 ms] Linux
[5570 ms] 
[5570 ms] Start: Run in host: uname -m
[5572 ms] x86_64
[5572 ms] 
[5572 ms] Start: Run in host: (cat /etc/os-release || cat /usr/lib/os-release) 2>/dev/null
[5575 ms] PRETTY_NAME="Ubuntu 24.04.1 LTS"
NAME="Ubuntu"
VERSION_ID="24.04"
VERSION="24.04.1 LTS (Noble Numbat)"
VERSION_CODENAME=noble
ID=ubuntu
ID_LIKE=debian
HOME_URL="https://www.ubuntu.com/"
SUPPORT_URL="https://help.ubuntu.com/"
BUG_REPORT_URL="https://bugs.launchpad.net/ubuntu/"
PRIVACY_POLICY_URL="https://www.ubuntu.com/legal/terms-and-policies/privacy-policy"
UBUNTU_CODENAME=noble
LOGO=ubuntu-logo
[5576 ms] 
[5576 ms] Start: Downloading VS Code Server
[5577 ms] 0781e811de386a0c5bcb07ceb259df8ff8246a50 linux-x64 stable
Edit:
Seems to be related to Dev Containers don’t work anymore: stuck on “Connecting to Dev Container: Installing server” - Discussion - Cursor - Community Forum
Edit 2:
I removed the .cursor-server directory in my Ubuntu host and restarted cursor. It now built the container just fine!