Steps to Reproduce:

1. Install the GistPad extension
2. Open the Gists tree view, and open a file in one of your gists (or create one if necessary)
3. Open up Copilot chat in agent mode and make sure the gist file is selected as context
4. Ask for an edit to be made to the file

Expected: That the requested edits are made
Actual: The agent spins for a bit and then comes back to say that it can't make the change. For example:

Note that the agent can read the file just fine. And if I use the GistPad MCP server, I can make edits to any gists through it's tools. So the issue appears to be specifically with the built-in insert_edit_into_file tool, and its ability to edit virtual files that aren't part of the workspace (which GIstPad is just an example of).