Change:
abstract layout(state: IDiffElementLayoutState): void; protected updateEditorOptions(editor: DiffEditorWidget, optionsToUpdate: ('hideUnchangedRegions' | 'renderSideBySide' | 'useInlineViewWhenSpaceIsLimited')[]): IDisposable { <del> if (!optionsToUpdate.length) { return Disposable.None; } const options: { renderSideBySide?: boolean; useInlineViewWhenSpaceIsLimited?: boolean; hideUnchangedRegions?: { enabled: boolean }; } = {}; if (optionsToUpdate.includes('renderSideBySide')) { options.renderSideBySide = this.configurationService.getValue<boolean>('diffEditor.renderSideBySide'); } if (optionsToUpdate.includes('hideUnchangedRegions')) { const enabled = this.configurationService.getValue<boolean>('diffEditor.hideUnchangedRegions.enabled'); options.hideUnchangedRegions = { enabled }; } if (optionsToUpdate.includes('useInlineViewWhenSpaceIsLimited')) { options.useInlineViewWhenSpaceIsLimited = this.configurationService.getValue<boolean>('diffEditor.useInlineViewWhenSpaceIsLimited'); } editor.updateOptions(options); return this.configurationService.onDidChangeConfiguration(e => { if (e.affectsConfiguration('diffEditor.hideUnchangedRegions.enabled')) { const enabled = this.configurationService.getValue<boolean>('diffEditor.hideUnchangedRegions.enabled'); editor.updateOptions({ hideUnchangedRegions: { enabled } }); } if (e.affectsConfiguration('diffEditor.renderSideBySide')) { const renderSideBySide = this.configurationService.getValue<boolean>('diffEditor.renderSideBySide'); editor.updateOptions({ renderSideBySide }); } if (e.affectsConfiguration('diffEditor.useInlineViewWhenSpaceIsLimited')) { const useInlineViewWhenSpaceIsLimited = this.configurationService.getValue<boolean>('diffEditor.useInlineViewWhenSpaceIsLimited'); editor.updateOptions({ useInlineViewWhenSpaceIsLimited }); } }); </del> <ins> return Disposable.None; // if (!optionsToUpdate.length) { // 	return Disposable.None; // } // const options: { // 	renderSideBySide?: boolean; // 	useInlineViewWhenSpaceIsLimited?: boolean; // 	hideUnchangedRegions?: { enabled: boolean }; // } = {}; // if (optionsToUpdate.includes('renderSideBySide')) { // 	options.renderSideBySide = this.configurationService.getValue<boolean>('diffEditor.renderSideBySide'); // } // if (optionsToUpdate.includes('hideUnchangedRegions')) { // 	const enabled = this.configurationService.getValue<boolean>('diffEditor.hideUnchangedRegions.enabled'); // 	options.hideUnchangedRegions = { enabled }; // } // if (optionsToUpdate.includes('useInlineViewWhenSpaceIsLimited')) { // 	options.useInlineViewWhenSpaceIsLimited = this.configurationService.getValue<boolean>('diffEditor.useInlineViewWhenSpaceIsLimited'); // } // editor.updateOptions(options); // return this.configurationService.onDidChangeConfiguration(e => { // 	if (e.affectsConfiguration('diffEditor.hideUnchangedRegions.enabled')) { // 		const enabled = this.configurationService.getValue<boolean>('diffEditor.hideUnchangedRegions.enabled'); // 		editor.updateOptions({ hideUnchangedRegions: { enabled } }); // 	} // 	if (e.affectsConfiguration('diffEditor.renderSideBySide')) { // 		const renderSideBySide = this.configurationService.getValue<boolean>('diffEditor.renderSideBySide'); // 		editor.updateOptions({ renderSideBySide }); // 	} // 	if (e.affectsConfiguration('diffEditor.useInlineViewWhenSpaceIsLimited')) { // 		const useInlineViewWhenSpaceIsLimited = this.configurationService.getValue<boolean>('diffEditor.useInlineViewWhenSpaceIsLimited'); // 		editor.updateOptions({ useInlineViewWhenSpaceIsLimited }); // 	} // }); </ins> } }

Discussion:
[ ] Computed editor height is no longer correct (lines can be hidden, with inline diff we have more than same number of lines), hence scroll bar size is incorrect (scroll bar size changes as you scroll) Remove top padding (which was for the toolbar) New cells do not have a headers Metadata not getting displayed (known issue) Change to Remove the top and bottom padding (when a cell is deleted, top big black space and small black bottom border)
Inline diff, wordwrap will be done as part of