Does this issue occur when all extensions are disabled?: Yes/No
Yes

• VS Code Version: 1.63.2 (Universal)
  Commit: 899d46d
  Date: 2021-12-15T09:37:28.172Z
  Electron: 13.5.2
  Chromium: 91.0.4472.164
  Node.js: 14.16.0
  V8: 9.1.269.39-electron.0
  OS: Darwin x64 21.2.0

• OS Version: macOS 12.1 Monterey

Steps to Reproduce:

1. Close integrated terminal.
2. Add following to User settings.json:
   "terminal.explorerKind": "external",
   "terminal.external.osxExec": "iTerm.app",
3. Restart VsCode
4. Launch terminal: Menu > Terminal > New Terminal
5. Regular integrated terminal is launched below the editor window.