Could you provide a debugging log as well? It is explained at https://xdebug.org/reporting-bugs#step-debugger on how to make one.

debug.log contains following actions: setting breakpoint, adding two variables to watch, editing expressions

I can't reproduce this: https://derickrethans.nl/files/dump/2024-02-07_09-40-54.gif

Your log also shows the right watches for these two variables, but also the "wrong" ones.

If I just right click on the variable, and do "Add to watch" it indeed cuts of the weird characters. But that's not an Xdebug issue — perhaps something in either VS Code, or the plugin: http://derickrethans.nl/files/dump/2024-02-07_09-45-34.gif

This indeed is a problem of VS Code. However the good news is that VSCode, when clicking the "Add to Watch", tries to delegate the decision to language extensions via the EvaluatableExpressionProvider (https://code.visualstudio.com/api/references/vscode-api#EvaluatableExpressionProvider).
So depending on what PHP language extension you have installed this might work better.
If you don't have any, VSCode probably falls back it it's word logic... I'm guessing here.

My https://marketplace.visualstudio.com/items?itemName=zobo.php-intellisense does support this and here is an example of the messages exchanged:

[Trace - 12:06:30 PM] Sending request 'textDocument/xevaluatableExpression - (305)'.
Params: {
    "textDocument": {
        "uri": "file:///app/index.php"
    },
    "position": {
        "line": 40,
        "character": 3
    }
}

[Trace - 12:06:30 PM] Received response 'textDocument/xevaluatableExpression - (305)' in 54ms.
Result: {
    "expression": "$Temperature_In_°C",
    "range": {
        "start": {
            "line": 40,
            "character": 0
        },
        "end": {
            "line": 40,
            "character": 19
        }
    }
}

I recently helped publish https://marketplace.visualstudio.com/items?itemName=phpactor.vscode-phpactor but that one is still missing this feature - I hope to get it in there soon.
There are other - commercial - PHP language server extensions, but I am not sure if they implement this feature.

@derick, you couldn't reproduce it because you selected the variable before adding to watch.
Try just clicking on the variable and then adding to watch to see the problem.

Normally, adding to watch does not require selecting a simple variable name. On certain cases, eg for part of an array like $a[1][2] you need to select it, if you want to add that single item of array $a, not all of $a.

My second video/GIF did show I could reproduce this. But it's not on Xdebug's side, so I can't do anything about it.

Ok, I have created an issue to https://github.com/microsoft/vscode/issues