Vscode-rust: VSCode fails to start RLS: '--toolchain <toolchain>' requires a value but none was supplied

It seems, that VS Code is not able to deal with custom paths.
In my environment, I have:

CARGO_HOME="$HOME/.local/opt/rust_cargo"
RUSTUP_HOME="$HOME/.local/opt/rustup"
PATH="$HOME/.local/bin:$CARGO_HOME/bin:…"

And VS Code is obviously ignoring both …_HOME variables. I _can_ set CARGO_HOME in the settings, but even then, it is ignored. RUSTUP_HOME cannot even be set. Anyway, VS Code keeps creating ~/.cargo and ~/.rustup… I tried symlinking these to my custom places so that VS Code finds them, but even so, it says that RLS is not found.

By the way, for a _new_ language, I cannot understand how the RUST team chose to place cache, lib, and settings files together, and right inside ~! The XDG specifications are so good at keeping the clutter at bay; too bad they were not followed.

I've had the same problem, but after some fiddling around, ignoring the issue and proceeding in configuring my Webpack setup, the plugin involved in Webpack handling of Rust-related code (wasm-pack-plugin) started complaining about the lack of a default toolchain.

TL;DR It seems that Arch installation of rustup does not set the default toolchain. After executing the following commands to download and set it up:

rustup install stable
rustup default stable

all problems went away and VSCode is not complaining anymore.

@TeHMoroS thanks for that. i was running into the error from OP on arch linux, running those 2 commands fixed it.