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For anyone else that ends up here, here are the current workarounds I've found
The vue-helper plugin does resolve this to some extent, but unfortunately the .d.ts file take priority over the plugin. Both are suggested in the list but the .d.ts file is always first. Maybe a temporary fix could be to disable the .d.ts definition files ?
I have tried adding "volar.vueserver.noProjectReferences": true and disabling the default VSCode typescript plugin but the results are always the same.
There is also the Goto definition alias plugin which will first open the .d.ts file and then the component file which isn't ideal either.
Related: microsoft/TypeScript#48264
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