Typing in the integrated terminal in VS Code on Big Sur is very annoyingly laggy and slow. This is the only application that experiences this, iTerm, etc. do not experience this issue. I tried disabling all plug-ins, themes, fonts, etc. to try to get to root cause.
Based on the thread here I was able to successfully mitigate the issue by running this command: codesign --remove-signature /Applications/Visual\ Studio\ Code.app/Contents/Frameworks/Code\ Helper\ \(Renderer\).app and restarting VS Code, the lag is completely gone and everything is back to normal.
If you trust VS Code developer then removing the signature should not be an issue but YMMV.
For me, I was super happy to find this solution, as it was driving me crazy.