Change:
On the latest insiders I can't click and drag the terminal scroll bar: !
Same here - but at least the terminal can actually be resized now!
I the same problem. In my case, all scrollbars (editor, explorer, ...) were. I tried and it was the same. Not sure if this is related, but Google Chrome and Slack App do not have this issue.
Same issue here, cannot scroll the terminal window. The cursor changes to text selector and is unable to scroll for the entire life of the terminal window. !
I completely shut down macOS and restarted it and it fixed it. It's strange.
Restarting vscode fixes it for me. It only happens when my cursor either hovers over a link in the terminal or I select some text from the terminal, it gets forever stuck in text selection/link click mode.
This is because of the image addon: ! cc
Upstream:
Saw that you released v1.80. In there is still 0.4.1 mentioned as version for xterm-addon-image. The patch version fixing this issue at hand is 0.4.2 - did that not work for you? Note that I was not able to repro the issue with vscode 1.79, so there is a chance that my attempt did not address it. Or did just the package update slip through?
I'm seeing this in Insiders. Restarting VSCode doesn't fix it and it only happens when I have multiple terminals open and the terminal tab sidebar is showing. Version: 1.81.0-insider (Universal) Commit: Date: 2023-07-07T19:50:58.701Z Electron: 22.3.14 ElectronBuildId: Chromium: 108.0.5359.215 16.17.1 V8: 10.8.168.25-electron.0 OS: Darwin x64 22.5.0
it came in a bit late for the release and didn't think it met the bar. I'll be updating soon

Discussion:
"vscode-oniguruma": "1.7.0", "vscode-regexpp": "^3.1.0", "vscode-textmate": "9.0.0", <del> "xterm": "5.3.0-beta.3", </del> <ins> "xterm": "5.3.0-beta.7", </ins> "xterm-addon-canvas": "0.5.0-beta.2", <del> "xterm-addon-image": "0.4.1", </del> <ins> "xterm-addon-image": "0.4.2", </ins> "xterm-addon-search": "0.13.0-beta.2", "xterm-addon-serialize": "0.11.0-beta.2", "xterm-addon-unicode11": "0.5.0", "xterm-addon-webgl": "0.16.0-beta.2", <del> "xterm-headless": "5.3.0-beta.3", </del> <ins> "xterm-headless": "5.3.0-beta.7", </ins> "yauzl": "^2.9.2", "yazl": "^2.4.3" },

"vscode-oniguruma": "1.7.0", "vscode-regexpp": "^3.1.0", "vscode-textmate": "9.0.0", <del> "xterm": "5.3.0-beta.3", </del> <ins> "xterm": "5.3.0-beta.7", </ins> "xterm-addon-canvas": "0.5.0-beta.2", <del> "xterm-addon-image": "0.4.1", </del> <ins> "xterm-addon-image": "0.4.2", </ins> "xterm-addon-search": "0.13.0-beta.2", "xterm-addon-serialize": "0.11.0-beta.2", "xterm-addon-unicode11": "0.5.0", "xterm-addon-webgl": "0.16.0-beta.2", <del> "xterm-headless": "5.3.0-beta.3", </del> <ins> "xterm-headless": "5.3.0-beta.7", </ins> "yauzl": "^2.9.2", "yazl": "^2.4.3" }

"tas-client-umd": "0.1.8", "vscode-oniguruma": "1.7.0", "vscode-textmate": "9.0.0", <del> "xterm": "5.3.0-beta.3", </del> <ins> "xterm": "5.3.0-beta.7", </ins> "xterm-addon-canvas": "0.5.0-beta.2", <del> "xterm-addon-image": "0.4.1", </del> <ins> "xterm-addon-image": "0.4.2", </ins> "xterm-addon-search": "0.13.0-beta.2", "xterm-addon-unicode11": "0.5.0", "xterm-addon-webgl": "0.16.0-beta.2"

resolved "https://registry.yarnpkg.com/xterm-addon-webgl/-/xterm-addon-webgl-0.16.0-beta.2.tgz#30489ef235405255ee54077002c90553531870d8" integrity sha512-DAt4E/QI1w34ToBhcDj0vaZOAHOO+ffwMt2HGDAB7amPXRcMb0LBIjLpyZhB9sD4tbIgsE0vuqZi1R9vKxZwbg== <del> xterm@5.3.0-beta.3: version "5.3.0-beta.3" resolved "https://registry.yarnpkg.com/xterm/-/xterm-5.3.0-beta.3.tgz#1a1aaf9a57afe4dcf86e87d8dc85e80a41d68644" integrity sha512-NGxpV25U2W/KKk6M5V2OXuLgrKY+w05ABi66ZEYuCTi7ux1Qv0z+jm7bkgzk1pGGiTVLG+90OGr2nrhbFr5Y4w== </del> <ins> xterm@5.3.0-beta.7: version "5.3.0-beta.7" resolved "https://registry.yarnpkg.com/xterm/-/xterm-5.3.0-beta.7.tgz#ee638fe60382e6b13f36dec2355c3530ff1c4c34" integrity sha512-wd+QHHfCVSZMSH7ah8WSeCu7VAqZcAD5pEAOiQxCg4VfXu+L//QOycqlWecgr0SFui2X9LshfD+cI9J3FcHRNA== </ins>

resolved "https://registry.yarnpkg.com/xterm-addon-webgl/-/xterm-addon-webgl-0.16.0-beta.2.tgz#30489ef235405255ee54077002c90553531870d8" integrity sha512-DAt4E/QI1w34ToBhcDj0vaZOAHOO+ffwMt2HGDAB7amPXRcMb0LBIjLpyZhB9sD4tbIgsE0vuqZi1R9vKxZwbg== <del> xterm-headless@5.3.0-beta.3: version "5.3.0-beta.3" resolved "https://registry.yarnpkg.com/xterm-headless/-/xterm-headless-5.3.0-beta.3.tgz#153cf330082f4b2aae64ff736ef0b62d93c30da8" integrity sha512-4i/bpFoAn4D4ZA4g8RKrJdhq2EcB1HN2E25yUg3omRbWCOZ2Gp9nAn+62LYzX5rvGqdNbpUTRJLX0lKwEFyLFw== </del> <ins> xterm-headless@5.3.0-beta.7: version "5.3.0-beta.7" resolved "https://registry.yarnpkg.com/xterm-headless/-/xterm-headless-5.3.0-beta.7.tgz#92704cecf937a18f2223b16efcab8c4e9e8a9e62" integrity sha512-8LDY/cId73q3w6jMmiGU6HtJlfIhtqu/oWlDj/9wUr8SQnCQJwPBzu6RizzQRz1lzMN+8WHdzrHjKcNtayZbdw== </ins> <del> xterm@5.3.0-beta.3: version "5.3.0-beta.3" resolved "https://registry.yarnpkg.com/xterm/-/xterm-5.3.0-beta.3.tgz#1a1aaf9a57afe4dcf86e87d8dc85e80a41d68644" integrity sha512-NGxpV25U2W/KKk6M5V2OXuLgrKY+w05ABi66ZEYuCTi7ux1Qv0z+jm7bkgzk1pGGiTVLG+90OGr2nrhbFr5Y4w== </del> <ins> xterm@5.3.0-beta.7: version "5.3.0-beta.7" resolved "https://registry.yarnpkg.com/xterm/-/xterm-5.3.0-beta.7.tgz#ee638fe60382e6b13f36dec2355c3530ff1c4c34" integrity sha512-wd+QHHfCVSZMSH7ah8WSeCu7VAqZcAD5pEAOiQxCg4VfXu+L//QOycqlWecgr0SFui2X9LshfD+cI9J3FcHRNA== </ins> yallist@^4.0.0: version "4.0.0"

resolved "https://registry.yarnpkg.com/xterm-addon-canvas/-/xterm-addon-canvas-0.5.0-beta.2.tgz#1b83c2a9a306766c47a4f80b8c65cc9ee5f5a5c4" integrity sha512-oTb/2krdbHYGxH2X6yiBZzAB/1WB+apUu4nXHdhBnht20bl8E+YVWqg95D4o0Gl+QJI+XOfB3mqmWaBx1x531A== <del> xterm-addon-image@0.4.1: version "0.4.1" resolved "https://registry.yarnpkg.com/xterm-addon-image/-/xterm-addon-image-0.4.1.tgz#ec8f750af48005ad641c1128fa1f551ac198472a" integrity sha512-iJpYyvtbHg4oXSv+D6J73ZfCjnboZpbZ567MLplXDBlYSUknv3kvPTfVMPJATV7Zsx7+bDgyXboCh9vsDf/m/w== </del> <ins> xterm-addon-image@0.4.2: version "0.4.2" resolved "https://registry.yarnpkg.com/xterm-addon-image/-/xterm-addon-image-0.4.2.tgz#d25bb3a8c543d014accbfbbc875927f54d5f43b9" integrity sha512-QVuH5CGlValtFMVorb71TnMV7kQLqc9+V5oyOMNvFqW1NiOBNo/d0WVvMU8qOd2vsAdTbhjvUO8SPptZ5TJHYw== </ins> xterm-addon-search@0.13.0-beta.2: version "0.13.0-beta.2"

resolved "https://registry.yarnpkg.com/xterm-addon-webgl/-/xterm-addon-webgl-0.16.0-beta.2.tgz#30489ef235405255ee54077002c90553531870d8" integrity sha512-DAt4E/QI1w34ToBhcDj0vaZOAHOO+ffwMt2HGDAB7amPXRcMb0LBIjLpyZhB9sD4tbIgsE0vuqZi1R9vKxZwbg== <del> xterm-headless@5.3.0-beta.3: version "5.3.0-beta.3" resolved "https://registry.yarnpkg.com/xterm-headless/-/xterm-headless-5.3.0-beta.3.tgz#153cf330082f4b2aae64ff736ef0b62d93c30da8" integrity sha512-4i/bpFoAn4D4ZA4g8RKrJdhq2EcB1HN2E25yUg3omRbWCOZ2Gp9nAn+62LYzX5rvGqdNbpUTRJLX0lKwEFyLFw== </del> <ins> xterm-headless@5.3.0-beta.7: version "5.3.0-beta.7" resolved "https://registry.yarnpkg.com/xterm-headless/-/xterm-headless-5.3.0-beta.7.tgz#92704cecf937a18f2223b16efcab8c4e9e8a9e62" integrity sha512-8LDY/cId73q3w6jMmiGU6HtJlfIhtqu/oWlDj/9wUr8SQnCQJwPBzu6RizzQRz1lzMN+8WHdzrHjKcNtayZbdw== </ins> <del> xterm@5.3.0-beta.3: version "5.3.0-beta.3" resolved "https://registry.yarnpkg.com/xterm/-/xterm-5.3.0-beta.3.tgz#1a1aaf9a57afe4dcf86e87d8dc85e80a41d68644" integrity sha512-NGxpV25U2W/KKk6M5V2OXuLgrKY+w05ABi66ZEYuCTi7ux1Qv0z+jm7bkgzk1pGGiTVLG+90OGr2nrhbFr5Y4w== </del> <ins> xterm@5.3.0-beta.7: version "5.3.0-beta.7" resolved "https://registry.yarnpkg.com/xterm/-/xterm-5.3.0-beta.7.tgz#ee638fe60382e6b13f36dec2355c3530ff1c4c34" integrity sha512-wd+QHHfCVSZMSH7ah8WSeCu7VAqZcAD5pEAOiQxCg4VfXu+L//QOycqlWecgr0SFui2X9LshfD+cI9J3FcHRNA== </ins> y18n@^3.2.1: version "3.2.2"