On the one hand, I sorta agree with you and I find some of the kneejerk anti-telemetry perspectives to be maybe overly paranoid. On the other hand, I do think there's a valid concern here because the telemetry is closed source.
Short of reverse engineering the official binaries and/or inspecting what it sends back to Microsoft, there's no way of knowing what it's actually collecting, which is understandably concerning given Microsoft's history. And you'd have to do that for every release, since any update could expand the scope of what they gather.
Personally, I don't quite care enough to bother doing something about it, but I can see why folks who are inclined to distrust Microsoft would not want to trust them on this.
Telemetry is also not the only solution to the problem of improving a product. For something like a code editor, I cannot imagine what they can learn from telemetry that the cannot also learn from methods like user interviews.
User interviews are slow, unreliable compared to millions of devs submitting telemetry, and take a significant effort on both sides to conduct.
Telemetry can alert of bugs, crashes, incompatibilities on certain platforms, hardware & software. You can see which extensions are most used, how often the settings are changed, which ones are most often changed, for example:
how many % of the devs change their font? To which one do they change it? can we change the default to that if say.. 80% of the devs prefer it to the other default.
They can also run a/b tests testing new features and gather info without having to poll thousands of devs about it.
Short of reverse engineering the official binaries and/or inspecting what it sends back to Microsoft, there's no way of knowing what it's actually collecting, which is understandably concerning given Microsoft's history. And you'd have to do that for every release, since any update could expand the scope of what they gather.
Personally, I don't quite care enough to bother doing something about it, but I can see why folks who are inclined to distrust Microsoft would not want to trust them on this.