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Does this issue occur when all extensions are disabled?: No
VS Code Version: 1.66-insiders
OS Version: macOS monterey
This is a bit tricky as I'm not sure how to re-engineer this situation for the repro. But the repro is as follows.
VS Code Insiders 1.65
Install the .NET Interactive extension (version 310011 targets 1.65-insiders)
Disable the extension
VS Code Insiders updated to 1.66
Attempt to enable the .NET Interactive extension (note at this point there is no version that targets 1.66-insiders on the market)
Extension is now in a state where it cannot be enabled or disabled and I don't see an indication that the reason it's disabled is the engine version mismatch