I am encountering the same issue with Ubuntu 22.04 in similar envirotment as @flyingkaktus described.

I have the same problem as @flyingkaktus described.

I found disco gzip on Launchpad: https://launchpad.net/ubuntu/disco/amd64/gzip/1.9-3

Workaround #1856 worked for me with this download

for me the error was that my running wsl was version 1, by switching to wsl2 everything works fine.

wsl2 update if missing https://wslstorestorage.blob.core.windows.net/wslblob/wsl_update_x64.msi

you can check your running version in the cmd:

wsl -l -v
wsl --set-default-version 2
wsl --set-version Ubuntu-22.04 2 #will set your Ubuntu 22.04 distribution to use WSL 2

https://code.visualstudio.com/docs/remote/wsl

FROM VS CODE
Alternatively, you can open a Remote WSL window directly from VS Code:

Start VS Code.
Press F1, select Remote-WSL: New Window for the default distro or Remote-WSL: New Window using Distro for a specific distro.
Use the File menu to open your folder.
If you already have a folder open, you can also use the Remote-WSL: Reopen in WSL command. You will be prompted which distro to use.

If you are in a WSL window and want to open the current input in a local window, use Remote-WSL: Reopen in Windows.

@elieyi when the error was not fixed, it did not work via this way either, because on Linux side the server did not operate.

There was the same issue with Ubuntu 22.04 in a similar environment as @flyingkaktus.
After following the above steps on the windows part after that Ubuntu 22.04 activated automatically on VS Code. After that I wrote that "code ." on the ubuntu side, the problem was fixed.

please ref: microsoft/WSL#8219 (comment)

In gzip 1.10-4ubuntu4 , to change the value at offset 0x189 using

echo -en '\x10' | sudo dd of=/usr/bin/gzip count=1 bs=1 conv=notrunc seek=$((0x189))

The problem was fixed

Thank you thermalogic,
Running the command
echo -en '\x10' | sudo dd of=/usr/bin/gzip count=1 bs=1 conv=notrunc seek=$((0x189))

That fixed my issue