This is a known ESM extension compatibility issue - Cursor’s runtime doesn’t yet support ES module extensions (added in VS Code 1.100+), causing the “Cannot find package ‘vscode’” error.
Prettier v12+ has the same error. Staff confirmed this in topic #144434 and is looking into it.
Workaround: Check if Iconify has an older non-ESM version available (Extensions panel → gear icon → “Install Another Version”). Prettier users successfully downgraded from v12 to v11 to resolve the same error.