I was getting similar permission errors trying to connect to a WSL Distro from VSCode.
It turned out that, as I'm running on a virtual desktop, my Windows profile is actually held on a separate disk and mounted into a mount point folder under c:\users\.
From Windows' point of view this is seamless.
From WSL's point of view, it's trying to automatically map Windows file system permissions into Linux file system permissions... and cannot do that for mounted volumes.
To resolve this I have moved my vscode extensions to a different folder on the main drive using this answer.