I finally discovered the issue, and along the way encountered two other very bizarre similar issues in trying to compile other SQLRPGLE and RPGLE sources.

All three problems had the same root cause and manifested their errors differently. This one simply would not bring in the /COPY source. A different SQLRPGLE source generated CPF9549 "Error addressing API parameter" while compiling. The RPGLE source generated RNS9311 "Compilation stopped. Internal failure occurred. Error code is 1."

As I continued to troubleshoot all this, I discovered that these issues had nothing to do with VS Code or its Extensions in any way. I was able to replicate all issues at a 5250 emulator command line on the IBM i.

As I mentioned previously, I am in the middle of migrating my RPG development to VS Code and git. At this point in time there has been very little code clean-up performed after copying the native source file members to files in the IFS and naming them appropriately just prior to adding them all to git commitment control and pushing them up to the Azure repo.

What I discovered was that many of the sources contained special characters in comment lines that when viewed in SEU would colorize that source. Compiling the source from a native source file worked without any problems, but when attempting to compile from an IFS source file, the compiler would choke on the comment lines containing these special characters and present the failure in a variety of ways. My /COPY source file contained these special characters and the compiler simply would not include the file. After removing the special characters, it compiled flawlessly. Likewise the sources that failed with CPF9549 and RNS9311 also compiled normally after removing the special characters from the comment lines.