The VS Code extension seems to use the custom flag used within SQLMesh as well (disable_anonymized_analytics) to send analytics data.
https://sglmesh.readthedocs.io/en/stable/reference/configuration/?h=telemetry#anonymized-usage-information
Therefore, the extension does not honor the global telemetry setting exposed in VS Code (telemetry telemetryLevel) https://code.visualstudio.com/api/extension-guides/telemetry