I have had the same issue.
Check out what vscode version cursor is using from the about menu mine uses 1.93.1 while the hello world example auto-generated defaulted to 1.96.0
The solution was to downgrade the following in package.json and npm install again

...
  "engines": {
    "vscode": "^1.93.0"
  },
...
"devDependencies": {
    "@types/vscode": "^1.93.0",
...

related:

• https://forum.cursor.com/t/my-extension-is-not-being-activated-in-cursor/14463
• https://forum.cursor.com/t/how-to-debug-a-vs-code-extension-using-cursorai/35717