Does this issue occur when all extensions are disabled?: No, issue occurs in extension. I reported the issue to the extension and was told it is an issue with VS Code. Note that my repro steps are slightly different as I simplified them, but they have the same effect.

• VS Code Version: 1.79.2 and Insider's
• OS Version: Windows 10 21H2 Build 19044.2788

Steps to Reproduce:
unc_package_dir.zip

1. Install Python extension and Pylance extension
2. Extract attached ZIP file to a local and UNC location.
3. Open the unc_package_dir folder from the UNC path in VS Code. Confirm that you want to add the UNC host to the whitelist permanently.
4. Open file test.py in editor, once the analysis completed after a few seconds, note that import some_package is indicated as an error. Under Problems note the message [unc_package_dir.zip](https://github.com/microsoft/vscode/files/11824504/unc_package_dir.zip) Import "some_package" could not be resolved

Now repeat 3-5 but for the unc_package_dir in the local folder location. Note that the Import "some_package" could not be resolved does not appear here.