I have that same problem. Cursor works but it interferes with command execution.
Same version as OP:
Version: 1.2.4 (user setup)
VSCode Version: 1.99.3
Commit: a8e95743c5268be73767c46944a71f4465d05c90
Date: 2025-07-10T17:09:01.383Z
Electron: 34.5.1
Chromium: 132.0.6834.210
Node.js: 20.19.0
V8: 13.2.152.41-electron.0
OS: Windows_NT x64 10.0.26100