I then tried to use the command line to SSH into the machine directly, that is when I got this prompt:

I answered 'yes' and the SSH connection was made. I was then able to use the Context in VS Code and the panels refreshed as expected. I found the following StackOverflow item that discuss this, it has to do with the ~/.ssh/known_hosts file.
https://stackoverflow.com/questions/3663895/ssh-the-authenticity-of-host-hostname-cant-be-established
Is there a way we can alert the user to this issue?