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On version v0.1.5 of the extension, I tried logging into my Coder deployment by providing the URL but I didn't include the "https://" prefix. I was then prompted to paste the API key from the Coder website that the extension said should have been launched in a web browser window, but no web browser window was ever launched.
I tried once more but this time provided the "https://" prefix and then VS Code prompted me to allow it to open the Coder website in a web browser window, and from there I was able to login successfully.