Developing Fabric Notebooks in VS Code - What's the current best setup?

Hello robertozsr 

If you are referring to Fabric Data Engineering VS Code extension, it is indeed the appropriate way to develop Fabric notebooks locally using Visual Studio Code. The extension enables you to click on Open in VS Code button on Fabric UI to open it locally in your VS Code. It comes with Git integration, allows you to run local Fabric runtimes, and can also execute your code on remote Spark compute on Fabric. 

Within VS Code you get the usual perks, GitHub integration, CoPilot etc. If you have used it a while back, I suggest you should give it a try again. 

In regards to connecting to a Lakehouse, when you code runs on remote cluster, it can read/write from a Lakehouse in the same way it would from the Fabric portal. If you plan to connect from local environment, you'd have to use the ADLS APIs and authenticate using Microsoft Entra, just like you'd do for any storage account on Azure. I would suggest you run your code on remote Fabric Spark, rather than running it locally, simply because your code is destined for Fabric anyway if you're planning to schedule it as part of your pipeline. 

The recommended approach in my view would be to use Fabric Data Engineering VS Code Extension to develop your notebooks locally, but run it on remote Spark via Microsoft Fabric Runtime. You should write reusable code in Python modules, just like you do in any other projects, and use Notebooks for transformation and orchestration.