Portable .mcp.json is not read into configuration

• Copilot Chat Extension Version: 1.0.84.70.gdb75d0d
• VS Code Version: 1.138.0
• OS Version: Windows NT 10.0.26200
• Feature (e.g. agent/edit/ask mode): MCP Connection
• Selected model (e.g. GPT 4.1, Claude 3.7 Sonnet): Auto
• Logs:

Steps to Reproduce:

1. create a file .mcp.json with a valid MCP server configuration
2. open the folder containing the file in VS Code
3. in the Copilot window, open the "Set Agent" menu, select "configure custom agents", and open the "MCP servers" tab of the configuration

Expected: the MCP server you just configured should be listed as installed.

Actual: the MCP server is not shown as installed. According to the MCP Configuration Reference, this should be a valid location for MCP configuration:

for portable configuration, use a workspace .mcp.json

Workaround: Copying the .mcp.json to .vscode/mcp.json results in the MCP server showing as installed.