The Visual Studio Code distribution from Microsoft is not open source. Code-OSS is open source and that is the vscode repository on GitHub. The relationship is very much like Chromium and Chrome.
Just that the out-of-the box Open Source VS Code is modified by roughly 5 configuration options (you guessed, telemetry urls), icons and a EULA before it is packaged by Microsoft.
I would not call that closed source. I call that redistributed with pre-configured settings. It is similar to what RedHat is doing to Linux and the GNU user space (if I am not wrong ;))
However, the extension market space, certain debuggers and certain VS Code branded extensions are a different story.