Devcontainer containerEnv variables not being transpiled from .env file

[corvuszero]

Does this issue occur when all extensions are disabled?: Yes

• VS Code Version: Version: 1.97.0 (Universal)
  Commit: 33fc5a9
  Date: 2025-02-04T22:41:26.688Z
• OS Version: macOS 15.2 (24C101)

Steps to Reproduce:

1. Open Project with a Devcontainer previously running and getting Environment Variables from .devcontainer/.env
2. Build Devcontainer and watch code fail without any changes
3. open VSCode terminal and execute printenv
4. Watch environment variables not being transpiled, example:

.devcontainer/.env

MYSQL_HOST=hello

./devcontainer/devcontainer.json

"containerEnv: {
  "MYSQL_HOST": "$MYSQL_HOST"
}

VSCode Terminal printenv:

MYSQL_HOST=$MYSQL_HOST

Expected Result (working before mentioned VSCode version):

MYSQL_HOST=hello