Address PR feedback: preserve trace flags/state, plumb inbound $invokeTool

- TraceContext now carries optional traceFlags + traceState (W3C); the real
  OTel impl populates them so the built traceparent reflects the upstream
  sampling decision instead of hardcoding '01'.
- toolsService: build traceparent with the actual flag, forward tracestate.
- extHostLanguageModelTools.$invokeTool: deliver traceparent/tracestate to
  extension-implemented tools for symmetry with outbound $invokeTool.
- Reword toolsService comment so it matches the unconditional behavior.

Author: zhichli

extensions/copilot/src/extension/tools/vscode-node/toolsService.ts

@@ -175,14 +175,22 @@ export class ToolsService extends BaseToolsService {
 
 		const startTime = Date.now();
 
-		// Propagate W3C trace context to MCP tools so server-side spans can be correlated
-		// with this `execute_tool` span (MCP SEP-414, see #302301). Only set if not already
-		// supplied by the caller and OTel produced a real span context.
-		const optionsWithTrace = options as vscode.LanguageModelToolInvocationOptions<Object> & { traceparent?: string };
-		if (!optionsWithTrace.traceparent) {
-			const ctx = span.getSpanContext();
-			if (ctx) {
-				optionsWithTrace.traceparent = `00-${ctx.traceId}-${ctx.spanId}-01`;
+		// Propagate W3C trace context to tool invocations so downstream spans can be
+		// correlated with this `execute_tool` span. MCP tools forward this onto
+		// `_meta.traceparent`/`_meta.tracestate` of the JSON-RPC `tools/call` payload
+		// (MCP SEP-414, see #302301). Only set if not already supplied by the caller.
+		const optionsWithTrace = options as vscode.LanguageModelToolInvocationOptions<Object> & { traceparent?: string; tracestate?: string };
+		const ctx = span.getSpanContext();
+		if (ctx) {
+			if (!optionsWithTrace.traceparent) {
+				// Preserve the upstream W3C trace flags when available. Fall back to `01`
+				// (sampled) so downstream MCP servers continue to participate in the trace
+				// when the abstraction does not surface flags (e.g. tests, in-memory impl).
+				const flags = (ctx.traceFlags ?? 0x01).toString(16).padStart(2, '0');
+				optionsWithTrace.traceparent = `00-${ctx.traceId}-${ctx.spanId}-${flags}`;
+			}
+			if (!optionsWithTrace.tracestate && ctx.traceState) {
+				optionsWithTrace.tracestate = ctx.traceState;
 			}
 		}
 

extensions/copilot/src/platform/otel/common/otelService.ts

@@ -15,6 +15,14 @@ export const IOTelService = createServiceIdentifier<IOTelService>('IOTelService'
 export interface TraceContext {
 	readonly traceId: string;
 	readonly spanId: string;
+	/**
+	 * W3C trace flags from the source span context (e.g. `0x01` for sampled). Optional
+	 * because not all impls preserve it; consumers that build a W3C `traceparent` should
+	 * fall back to a sampled value when unset.
+	 */
+	readonly traceFlags?: number;
+	/** W3C tracestate serialized as a comma-separated key=value list, when present. */
+	readonly traceState?: string;
 }
 
 /**

extensions/copilot/src/platform/otel/node/otelServiceImpl.ts

@@ -344,7 +344,7 @@ export class NodeOTelService implements IOTelService {
 		if (!ctx.traceId || !ctx.spanId) {
 			return undefined;
 		}
-		return { traceId: ctx.traceId, spanId: ctx.spanId };
+		return { traceId: ctx.traceId, spanId: ctx.spanId, traceFlags: ctx.traceFlags, traceState: ctx.traceState?.serialize() };
 	}
 
 	// ── Trace Context Store ── (for cross-boundary propagation)
@@ -620,7 +620,9 @@ class RealSpanHandle implements ISpanHandle {
 
 	getSpanContext(): TraceContext | undefined {
 		const ctx = this._span.spanContext();
-		return ctx.traceId && ctx.spanId ? { traceId: ctx.traceId, spanId: ctx.spanId } : undefined;
+		return ctx.traceId && ctx.spanId
+			? { traceId: ctx.traceId, spanId: ctx.spanId, traceFlags: ctx.traceFlags, traceState: ctx.traceState?.serialize() }
+			: undefined;
 	}
 
 	end(): void {

src/vs/workbench/api/common/extHostLanguageModelTools.ts

@@ -193,6 +193,8 @@ export class ExtHostLanguageModelTools implements ExtHostLanguageModelToolsShape
 			options.chatInteractionId = dto.chatInteractionId;
 			options.chatSessionResource = URI.revive(dto.context?.sessionResource);
 			options.subAgentInvocationId = dto.subAgentInvocationId;
+			options.traceparent = dto.traceparent;
+			options.tracestate = dto.tracestate;
 		}
 
 		if (isProposedApiEnabled(item.extension, 'chatParticipantAdditions') && dto.modelId) {