UPDATE: It turns out com.unity.ide.vscode@1.1.4 is utterly broke as well, see Unity forum thread: https://forum.unity.com/threads/visual-studio-code-editor-1-1-4-error-the-referenced-project-does-not-exist.806628/

1.2.0 was a release to address this issue. It seems the recommendation at the moment is to actually roll back to 1.1.3. This is (finally) working correctly for my on my machine.

A regression has been made in the package com.unity.ide.vscode since v1.2.0 that re-introduces this property in generated csproj files, breaking external compilers.

You can see it in the code mirrored here: https://github.com/needle-mirror/com.unity.ide.vscode/blob/168d16ca32f5864f8b9332b440c538b8171850bc/Editor/ProjectGeneration/ProjectGeneration.cs#L479

If you revert back to com.unity.ide.vscode@1.1.4 then this problem goes away (though you lose the "Regenerate project files" button in settings - automatic generation still works). I've raised a ticket with Unity to remove this from the package, will comment here again when it is updated.

uuumm are you sure this is resolved? I'm getting the same behaviour on versions:
2020.1.6
2020.1.9
2020.2.0b7

https://issuetracker.unity3d.com/issues/mouse-cursor-over-unity-5-dot-4-window-disappears-on-ms-surface-book

nice

I was chasing my tail for about 3 hours this morning, after upgrading from 2019.3.3f1 to 2019.3.12f1. I'm glad someone found it and posted the fix. I t was getting annoying as all hell!!

This is fixed in 2019.3.13, both for new projects and existing projects upgraded from 2019.3.12 where they were broken in Visual Studio 2019.

@DRDRAXI Thank you, this worked after closing Visual Studio, deleting .vs folders and all VS files, and then reopening any script.

@Luvikung you can set it to 'true' in referencing .csproj files

I found this piece of code on some forums few days after 12f1 was released. Just put this script somewhere inside your Assets folder and it should "fix" your .csproj file on import.

(Replacing these lines by hand won't work. They will change back to false everytime the script gets changed -> saved -> reimported)

using UnityEditor;
public class FIX : AssetPostprocessor
{
private static string OnGeneratedCSProject(string path, string content)
{
return content.Replace("<ReferenceOutputAssembly>false</ReferenceOutputAssembly>", "<ReferenceOutputAssembly>true</ReferenceOutputAssembly>");
}
}