Does this issue occur when all extensions are disabled?: Yes
(Only WSL enabled in host, no extension enabled in WSL)

• VS Code Version: 1.89.1
• OS Version: 10.0.22631 (Windows 11 23H2)

Steps to Reproduce:

1. connect to any WSL2 with WSL extension
2. run cargo run --target x86_64-pc-windows-gnu / cmd.exe /C tree / PING.EXE 1.1.1.1

// this file compiled to test.exe in target x86_64-pc-windows-gnu
use std::{thread::sleep, time::Duration};

fn main() {
  println!("hello");
  loop {
    sleep(Duration::from_micros(1000))
  }
}

3. press ctrl+c after hello

Additional Information:

• This issue is duplicated with VSCode Remote (WSL) does not send keyboard interrupt when executing through "cmd.exe /C" #189018
• The same procedure running in terminal application works.
• The key is running windows application (.exe) in WSL in vscode
• My terminal.integrated.windowsEnableConpty is true, so I assume I'm running with conpty.

This works fine for me running tree/cmd.exe /C tree and interrupting.

I'm not sure what is the first tree you run here, it might be /bin/tree but not the built-in command in cmd.exe, are you in WSL environment?