It was on this linked issue. They discuss the UX of it more there and I think it's a little better. https://github.com/microsoft/vscode/issues/32459

In particular, this comment helps explain why I think this is (was) a problem.

As we discuss this, keep in mind that most users who hit the "omg where are all my files" issue come into following these three simple steps:

1. Oh what is this? Yes, let's initialize, git sounds awesome, people use it.
2. Oh what is this? All my files appear in this list... but they didn't before. It looks like its touching my files, I don't like that, how to I get them out of here?
3. Oh what is this? Discard all changes sounds a lot like what I want to do. 💀

People don't hit this issue because we have that action; they hit it because they want to clear that list. And they will go through great lengths to get there, even if not knowing what their doing or after warned that they are in dangerous waters.

Coupled with the behavior of this "discard all" being git clean rather than git reset, I get the complaints.