Nah the extension API is pretty limited. Copilot uses proprietary API’s not available to extensions.
If you really want an integrated experience, and not just a sidebar UI, you need to go the same route as Cursor and fork Code-OSS (the MIT-licensed part of VS Code, analogous to Chromium for Chrome)
What about Continue? It's an open source, bring your own api AI integration for vscode. It does everything that copilot does, including the editing-your-code-in-front-of-you diff style editor.
If you really want an integrated experience, and not just a sidebar UI, you need to go the same route as Cursor and fork Code-OSS (the MIT-licensed part of VS Code, analogous to Chromium for Chrome)