I sometimes open Markdown files from my vault in VSCode, and one thing I noticed recently was, VSCode does not render file:// links (i.e. local filesystem references).
Example
Markdown:
- [file1](file1.txt)
- [file2](file:///Users/foo/Desktop/file1.txt)
- [file3](file3.txt)
How it renders in VSCode:
So I opened this issue on github.
They say if the issue gets 20 votes by 7/18/23, they will add it to their backlog for consideration. Hoping there might be 20 people here who would also like to see this & can spare a moment to please click on the issue and press the thumbs up 
on it.