This draws to mind the dialog that opens when you open a new project in Cursor (and VSCode too, I think), where the IDE asks the user if they trust the project they're opening. Is Cursor under the impression that this is sufficient security apparatus?

Since there are no approval dialogs, it sounds like that doesn't even come into play here. That is the "gate" (to use the AI parlance) that Microsoft places on code execution in workspaces, though, and I would expect Cursor to at minimum fix this to only execute git.exe in trusted workspaces.

Startups historically are not the most security oriented