Fix kernel picker UI stuck in loading state when third-party extensions throw CancellationError

src/notebooks/controllers/kernelSource/remoteNotebookKernelSourceSelector.ts

@@ -468,9 +468,6 @@ export class RemoteNotebookKernelSourceSelector implements IRemoteNotebookKernel
                             lazyQuickPick.busy = true;
                         }
                         const ret = await this.selectRemoteServerFromRemoteKernelFinder(selectedSource, state, token);
-                        if (lazyQuickPick) {
-                            lazyQuickPick.busy = false;
-                        }
                         return ret;
                     } catch (ex) {
                         if (ex === InputFlowAction.back && !defaultSelection) {
@@ -479,6 +476,9 @@ export class RemoteNotebookKernelSourceSelector implements IRemoteNotebookKernel
                             throw ex;
                         }
                     } finally {
+                        if (lazyQuickPick) {
+                            lazyQuickPick.busy = false;
+                        }
                         taskNb.dispose();
                     }
                 }

src/notebooks/controllers/kernelSource/remoteNotebookKernelSourceSelector.unit.test.ts

@@ -0,0 +1,46 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+import { assert } from 'chai';
+
+suite('Remote Notebook Kernel Source Selector - UI State Management', () => {
+    test('should demonstrate busy state pattern expectations', () => {
+        // This test documents the expected behavior for UI busy state management
+        // The fix ensures that lazyQuickPick.busy is reset in finally block
+
+        let busyState = false;
+        const mockQuickPick = {
+            set busy(value: boolean) {
+                busyState = value;
+            },
+            get busy() {
+                return busyState;
+            }
+        };
+
+        // Simulate the fixed pattern: busy state reset in finally block
+        const simulateOperation = async (shouldThrow: boolean) => {
+            try {
+                mockQuickPick.busy = true;
+                if (shouldThrow) {
+                    throw new Error('Simulated error');
+                }
+                return 'success';
+            } finally {
+                mockQuickPick.busy = false;
+            }
+        };
+
+        // Test successful case
+        return simulateOperation(false)
+            .then(() => {
+                assert.isFalse(mockQuickPick.busy, 'Busy state should be reset after success');
+            })
+            .then(() => {
+                // Test error case
+                return simulateOperation(true).catch(() => {
+                    assert.isFalse(mockQuickPick.busy, 'Busy state should be reset even after errors');
+                });
+            });
+    });
+});