[REGRESSION]: The "Playwright Test for VSCode" extension no longer works with 1.26 version update

[rkeyes42]

The test runs fine from the command line but NOT from the Playwright Test for VSCode extension

Here is the error:
Error: tests\Regression_STAGE.spec.ts:25:12: Playwright Test did not expect test() to be called here.
Most common reasons include:

• You are calling test() in a configuration file.

• You are calling test() in a file that is imported by the configuration file.

• You have two different versions of @playwright/test. This usually happens
  when one of the dependencies in your package.json depends on @playwright/test.

  at node_modules@playwright\test\lib\util.js:216

  214 |
  215 | function errorWithLocation(location, message) {

216 | return new Error(${formatLocation(location)}: ${message});
| ^
217 | }
218 |
219 | function expectTypes(receiver, types, matcherName) {

at errorWithLocation (C:\playwright_tests\node_modules\@playwright\test\lib\util.js:216:10)
at TestTypeImpl._ensureCurrentSuite (C:\playwright_tests\node_modules\@playwright\test\lib\testType.js:80:41)
at TestTypeImpl._createTest (C:\playwright_tests\node_modules\@playwright\test\lib\testType.js:89:24)
at Function.only (C:\playwright_tests\node_modules\@playwright\test\lib\transform.js:267:12)
at Object.<anonymous> (C:\playwright_tests\tests\Regression_STAGE.spec.ts:25:12)

=================
no tests found.

[rwoll]

Folding into #17500