I have had the same issue.
Check out what vscode version cursor is using from the about menu
mine uses 1.93.1
while the hello world example auto-generated defaulted to 1.96.0
The solution was to downgrade the following in package.json
and npm install
again
...
"engines": {
"vscode": "^1.93.0"
},
...
"devDependencies": {
"@types/vscode": "^1.93.0",
...
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