Critical config error loop: Extension opens settings.json instead of config.yaml/json and locks up

[Enric-1969]

Before submitting your bug report

• I've tried finding an answer on the Continue docs site
• I'm not able to find an open issue that reports the same bug
• I've seen the troubleshooting guide on the Continue Docs

Relevant environment info

- OS:Windows
- Continue version:
- IDE version:
- Model:
- config:
  

  
  OR link to agent in Continue hub:

Description

Subject: Critical config error loop: Extension opens settings.json instead of config.yaml/json and locks up
Description:
Hello,
I am experiencing a critical bug using the latest version of the Continue extension in VS Code on Windows.
The extension gets stuck in a Continue (config error) loop and the chat sidebar shows "No models configured", asking for OpenAI/Anthropic keys instead of reading my local Ollama configuration.
When I trigger the command Continue: Open config.json or click on "Main Config", VS Code erratically opens my global settings.json instead of the extension's isolated config.yaml or config.json file. Even when manually editing the config.yaml with the correct syntax for Ollama (qwen2.5-coder:7b), the extension remains frozen, does not update, and keeps throwing the configuration error at the bottom status bar.
This bug completely breaks the onboarding experience for local-only users. Please fix this pathing/config evaluation issue

To reproduce

No response

Log output