So a program that is specifically designed to edit files and run arbitrary commands on a remote machine... can do so. Not sure where the bananas part comes in. Sending a binary over SSH/SFTP might sound weird at first glance, but VSCode can't assume that your remote machine can access the wider internet, and it needs a reliable way to bootstrap the agent on the remote. Shipping it over the SSH tunnel is the natural solution.
I think the actual concern, not well expressed in the blog post, is the fact that node and vscode server are installed on, for instance, a prod machine that (probably) should be very tightly controlled in terms of what software is installed and running. You don't want to unwittingly add to the attack surface
This should be covered by not giving developers SSH shell or equivalent access to production machines in the first place, or at the very least to have measures in place (ACLs, quotas, etc.) to strictly limit what they are able to do from the shell.
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