Same with Emacs + CIDER for Clojure instead of Common Lisp. Fully remote project setup on powerful server, accessed from local Emacs with TRAMP mode. CIDER commands (REPL included) work over the remote connection perfectly fine and run on the remote host, including automatic SSH tunnelling for the nREPL port if needed (for example if the remote host is behind firewall)
WSL2 is running a VSCode server, exposes a port to the host and the VSC client from the host connects to it. In theory you could also run the VSCode Server on a remote machine.
I think the "Remote-SSH" plugin is a better fit for a comparison though, but @vital101's comment is not wrong.