To reduce the number of downloads and steps you need to go through to get started with the nRF Connect SDK, we have decided to move the toolchain installation part of the workflow into VS Code itself. Overall, we think this simplifies the setup and configuration process, and moves the toolchain management into one single consistent user interface.
Transitioning from using the nRF Connect for Desktop Toolchain Manager does not require any extra configuration. VS Code will find and present all toolchains you have already installed, and by default, the new toolchains will be installed next to the ones you installed through nRF Connect for Desktop.