Repro is to run ls then resize narrow and wide again. Conpty expects new lines to be added to the bottom and lines to get pushed into the scrollback:

The top window shows conpty's buffer state

This was always a problem in that is deleted content from the buffer as the whole screen was reprinted. With passthrough, this problem is even work as the cursor is put in a random spot after pwsh calls the GetConsoleCursorInfo API that is handled by conpty, not xterm.js

VS Code issue: microsoft/vscode#241978