Sure, but they depend on a bunch of Microsoft proprietary extensions (that they can't fork) that ban usage in VSCode forks, and they knew this when they made the choice. This was an inevitable outcome from Microsoft's side. I'm sure they want to remain in business more than they want complete control over the product.

> they depend on a bunch of Microsoft proprietary extensions

Microsoft still holds the crown when it comes to C# debugging, but for most proprietary MS extensions there are free, open source alternatives. They may not be as polished as the ones Microsoft actually pays people to maintain, but I don't see why Cursor would actually depend on any of the proprietary ones if you're not using it for C# dev (and even there competitors like Jetbrains have figured out a way to make it work).