Yes, I can see there was recent update to Python in November that has caused this
Early december i started getting this message.
Prior to this, it would only fail on paths that had double spaces in it (which was a bit of a folder naming convention ##__Name, etc.). That was a pain, but failing on UNC path’s is not really workable for me any more because every single file I have sits on a NAS, meaning that this issue is now a show stopper. 
The workaround they mentioned in the bit.ly link did not work for me.
Is there intention to fix this either by the python, vscode, or platformio developers? If not, is there any kind of work around like a path translator planned? Otherwise do I have to go and figure out another IDE solution; this would be a shame because I really liked it.
Thanks!