For anyone else suffering with this issue but still getting stuck on connection attempts even after installing the server under ~/.vscode-server/bin/{commit-hash}, there is a new setting in the remote-ssh extension for getting past the connection attempts with Microsoft's update server.

Near the bottom of the extension options there's a tick-box that says 'Use Exec Server' (Uses the new bootstrapping mode when connecting to a server. Can be toggled off in the event of connection issues."

Untick this setting(Use Exec Server) box and the connection can be made without trying to download and install all the packages first. This will require the grunt-work from the previous answers in installing the package manually but will also bypass the need to be connected to the internet and having it fail because the local/and remote server are both offline.

Good luck!