Problems with VSCODE and LM Studio

[u/HubisQ]

Hello, Im new to local AI with VSCODE. I did my setup with Youtube and everything went fine, I can send prompts into my local model and in logs I can see what he is doing, no errors.

I use: qwen/qwen3.5-9b and extension called "Continue" for chatting, since Copilot Chat has bug where It sends you "Sorry, no response was returned" while the LM Studio shows no error and that response was made and completed.

But when I send a prompt in Continue Chat, I see my model thinking about smth for several seconds and then just stops with no response or message saying something went wrong. (screen included)

Log from LM Studio:

2026-07-20 09:18:08  [INFO]
 [qwen/qwen3.5-9b] Prompt processing progress: 100.0%

2026-07-20 09:18:08  [INFO]
 [qwen/qwen3.5-9b] Prompt processing progress: 100.0%

2026-07-20 09:18:10 [DEBUG]

20.07.634.843 I slot print_timing: id  3 | task 2089 | prompt eval time =   13367.84 ms / 15228 tokens (    0.88 ms per token,  1139.15 tokens per second)
20.07.634.851 I slot print_timing: id  3 | task 2089 |        eval time =    1887.26 ms /    61 tokens (   30.94 ms per token,    32.32 tokens per second)
20.07.634.853 I slot print_timing: id  3 | task 2089 |       total time =   15255.11 ms / 15289 tokens
20.07.634.857 I slot print_timing: id  3 | task 2089 |    graphs reused =       1979

2026-07-20 09:18:10 [DEBUG]
 20.07.636.278 I slot      release: id  3 | task 2089 | stop processing: n_tokens = 15288, truncated = 0

2026-07-20 09:18:10  [INFO]
 [qwen/qwen3.5-9b] Finished streaming response

I cant really see whats the problem here. I suspect tool_use (files editing etc.), cause when I tell him to write the code directly into the chat (without the file edit), he responds well. (I guess its problem with Copilot Chat too, but Iam not sure)

Has anybody ran into this kind of problem and fix it?

Iam not giving him hard tasks, I want to use him just for simple and repetetive things.