diff --git a/src/vs/workbench/contrib/chat/browser/aiCustomization/aiCustomizationListWidget.ts b/src/vs/workbench/contrib/chat/browser/aiCustomization/aiCustomizationListWidget.ts
index 2ae76f14240..96873795ec8 100644
--- a/src/vs/workbench/contrib/chat/browser/aiCustomization/aiCustomizationListWidget.ts
+++ b/src/vs/workbench/contrib/chat/browser/aiCustomization/aiCustomizationListWidget.ts
@@ -115,6 +115,7 @@ class AICustomizationListDelegate implements IListVirtualDelegate<IListEntry> {
 interface IAICustomizationItemTemplateData {
 	readonly container: HTMLElement;
 	readonly actionsContainer: HTMLElement;
+	readonly typeIcon: HTMLElement;
 	readonly nameLabel: HighlightedLabel;
 	readonly description: HighlightedLabel;
 	readonly disposables: DisposableStore;
@@ -194,6 +195,47 @@ class GroupHeaderRenderer implements IListRenderer<IGroupHeaderEntry, IGroupHead
 	}
 }
 
+/**
+ * Returns the icon for a given prompt type.
+ */
+function promptTypeToIcon(type: PromptsType): ThemeIcon {
+	switch (type) {
+		case PromptsType.agent: return agentIcon;
+		case PromptsType.skill: return skillIcon;
+		case PromptsType.instructions: return instructionsIcon;
+		case PromptsType.prompt: return promptIcon;
+		case PromptsType.hook: return hookIcon;
+		default: return promptIcon;
+	}
+}
+
+/**
+ * Formats a name for display: strips a trailing .md extension, converts dashes/underscores
+ * to spaces and applies title case.
+ * Note: callers that pass IMatch highlight ranges must compute those ranges against the
+ * formatted string (not the raw input), since .md stripping changes string length.
+ */
+export function formatDisplayName(name: string): string {
+	return name
+		.replace(/\.md$/i, '')
+		.replace(/[-_]/g, ' ')
+		.replace(/\b\w/g, c => c.toUpperCase());
+}
+
+/**
+ * Truncates a description string to the first sentence, with a maximum character fallback.
+ */
+export function truncateToFirstSentence(text: string, maxChars = 120): string {
+	const match = text.match(/^[^.!?]*[.!?]/);
+	if (match && match[0].length <= maxChars) {
+		return match[0];
+	}
+	if (text.length > maxChars) {
+		return text.substring(0, maxChars).trimEnd() + '\u2026';
+	}
+	return text;
+}
+
 /**
  * Renderer for AI customization list items.
  */
@@ -212,6 +254,7 @@ class AICustomizationItemRenderer implements IListRenderer<IFileItemEntry, IAICu
 		container.classList.add('ai-customization-list-item');
 
 		const leftSection = DOM.append(container, $('.item-left'));
+		const typeIcon = DOM.append(leftSection, $('.item-type-icon'));
 		const textContainer = DOM.append(leftSection, $('.item-text'));
 		const nameLabel = disposables.add(new HighlightedLabel(DOM.append(textContainer, $('.item-name'))));
 		const description = disposables.add(new HighlightedLabel(DOM.append(textContainer, $('.item-description'))));
@@ -222,6 +265,7 @@ class AICustomizationItemRenderer implements IListRenderer<IFileItemEntry, IAICu
 		return {
 			container,
 			actionsContainer,
+			typeIcon,
 			nameLabel,
 			description,
 			disposables,
@@ -233,6 +277,10 @@ class AICustomizationItemRenderer implements IListRenderer<IFileItemEntry, IAICu
 		templateData.elementDisposables.clear();
 		const element = entry.item;
 
+		// Type icon based on prompt type
+		templateData.typeIcon.className = 'item-type-icon';
+		templateData.typeIcon.classList.add(...ThemeIcon.asClassNameArray(promptTypeToIcon(element.promptType)));
+
 		// Hover tooltip: name + full path
 		templateData.elementDisposables.add(this.hoverService.setupDelayedHover(templateData.container, () => {
 			const uriLabel = this.labelService.getUriLabel(element.uri, { relative: false });
@@ -245,11 +293,12 @@ class AICustomizationItemRenderer implements IListRenderer<IFileItemEntry, IAICu
 			};
 		}));
 
-		// Name with highlights
-		templateData.nameLabel.set(element.name, element.nameMatches);
+		// Name with highlights — nameMatches are pre-computed against the formatted display name
+		const displayName = formatDisplayName(element.name);
+		templateData.nameLabel.set(displayName, element.nameMatches);
 
-		// Description - show either description or filename as secondary text
-		const secondaryText = element.description || element.filename;
+		// Description - show either truncated description or filename as secondary text
+		const secondaryText = element.description ? truncateToFirstSentence(element.description) : element.filename;
 		if (secondaryText) {
 			templateData.description.set(secondaryText, element.description ? element.descriptionMatches : undefined);
 			templateData.description.element.style.display = '';
@@ -963,7 +1012,10 @@ export class AICustomizationListWidget extends Disposable {
 			matchedItems = [];
 
 			for (const item of this.allItems) {
-				const nameMatches = matchesContiguousSubString(query, item.name);
+				// Compute matches against the formatted display name so highlight positions
+				// are correct even after .md stripping and title-casing.
+				const displayName = formatDisplayName(item.name);
+				const nameMatches = matchesContiguousSubString(query, displayName);
 				const descriptionMatches = item.description ? matchesContiguousSubString(query, item.description) : null;
 				const filenameMatches = matchesContiguousSubString(query, item.filename);
 
diff --git a/src/vs/workbench/contrib/chat/browser/aiCustomization/mcpListWidget.ts b/src/vs/workbench/contrib/chat/browser/aiCustomization/mcpListWidget.ts
index 4b4f7895b41..ffaecde8443 100644
--- a/src/vs/workbench/contrib/chat/browser/aiCustomization/mcpListWidget.ts
+++ b/src/vs/workbench/contrib/chat/browser/aiCustomization/mcpListWidget.ts
@@ -29,7 +29,8 @@ import { Delayer } from '../../../../../base/common/async.js';
 import { IAction, Separator } from '../../../../../base/common/actions.js';
 import { getContextMenuActions } from '../../../../contrib/mcp/browser/mcpServerActions.js';
 import { LocalMcpServerScope } from '../../../../services/mcp/common/mcpWorkbenchManagementService.js';
-import { workspaceIcon, userIcon, extensionIcon } from './aiCustomizationIcons.js';
+import { workspaceIcon, userIcon, mcpServerIcon, builtinIcon } from './aiCustomizationIcons.js';
+import { formatDisplayName, truncateToFirstSentence } from './aiCustomizationListWidget.js';
 import { IHoverService } from '../../../../../platform/hover/browser/hover.js';
 import { IAICustomizationWorkspaceService } from '../../common/aiCustomizationWorkspaceService.js';
 import { CustomizationGroupHeaderRenderer, ICustomizationGroupHeaderEntry, CUSTOMIZATION_GROUP_HEADER_HEIGHT, CUSTOMIZATION_GROUP_HEADER_HEIGHT_WITH_SEPARATOR } from './customizationGroupHeaderRenderer.js';
@@ -93,6 +94,7 @@ class McpServerItemDelegate implements IListVirtualDelegate<IMcpListEntry> {
 
 interface IMcpServerItemTemplateData {
 	readonly container: HTMLElement;
+	readonly typeIcon: HTMLElement;
 	readonly name: HTMLElement;
 	readonly description: HTMLElement;
 	readonly status: HTMLElement;
@@ -113,13 +115,16 @@ class McpServerItemRenderer implements IListRenderer<IMcpServerItemEntry | IMcpB
 	renderTemplate(container: HTMLElement): IMcpServerItemTemplateData {
 		container.classList.add('mcp-server-item');
 
+		const typeIcon = DOM.append(container, $('.mcp-server-icon'));
+		typeIcon.classList.add(...ThemeIcon.asClassNameArray(mcpServerIcon));
+
 		const details = DOM.append(container, $('.mcp-server-details'));
 		const name = DOM.append(details, $('.mcp-server-name'));
 		const description = DOM.append(details, $('.mcp-server-description'));
 
 		const status = DOM.append(container, $('.mcp-server-status'));
 
-		return { container, name, description, status, disposables: new DisposableStore() };
+		return { container, typeIcon, name, description, status, disposables: new DisposableStore() };
 	}
 
 	renderElement(element: IMcpServerItemEntry | IMcpBuiltinItemEntry, index: number, templateData: IMcpServerItemTemplateData): void {
@@ -127,9 +132,9 @@ class McpServerItemRenderer implements IListRenderer<IMcpServerItemEntry | IMcpB
 
 		if (element.type === 'builtin-item') {
 			templateData.container.classList.add('builtin');
-			templateData.name.textContent = element.label;
+			templateData.name.textContent = formatDisplayName(element.label);
 			if (element.description) {
-				templateData.description.textContent = element.description;
+				templateData.description.textContent = truncateToFirstSentence(element.description);
 				templateData.description.style.display = '';
 			} else {
 				templateData.description.style.display = 'none';
@@ -139,9 +144,9 @@ class McpServerItemRenderer implements IListRenderer<IMcpServerItemEntry | IMcpB
 		}
 
 		templateData.container.classList.remove('builtin');
-		templateData.name.textContent = element.server.label;
+		templateData.name.textContent = formatDisplayName(element.server.label);
 		if (element.server.description) {
-			templateData.description.textContent = element.server.description;
+			templateData.description.textContent = truncateToFirstSentence(element.server.description);
 			templateData.description.style.display = '';
 		} else {
 			templateData.description.style.display = 'none';
@@ -674,7 +679,7 @@ export class McpListWidget extends Disposable {
 				id: 'mcp-group-builtin',
 				scope: 'builtin',
 				label: localize('builtInGroup', "Built-in"),
-				icon: extensionIcon,
+				icon: builtinIcon,
 				count: builtinServers.length,
 				isFirst,
 				description: localize('builtInGroupDescription', "MCP servers built into VS Code. These are available automatically."),
diff --git a/src/vs/workbench/contrib/chat/browser/aiCustomization/media/aiCustomizationManagement.css b/src/vs/workbench/contrib/chat/browser/aiCustomization/media/aiCustomizationManagement.css
index 34fae734958..8566c32eec4 100644
--- a/src/vs/workbench/contrib/chat/browser/aiCustomization/media/aiCustomizationManagement.css
+++ b/src/vs/workbench/contrib/chat/browser/aiCustomization/media/aiCustomizationManagement.css
@@ -306,8 +306,8 @@
 	flex-shrink: 0;
 	font-size: 10px;
 	font-weight: 500;
-	background-color: var(--vscode-badge-background);
-	color: var(--vscode-badge-foreground);
+	background-color: var(--vscode-list-inactiveSelectionBackground);
+	color: var(--vscode-list-inactiveSelectionForeground, var(--vscode-foreground));
 	padding: 0 5px;
 	border-radius: 8px;
 	min-width: 14px;
@@ -397,6 +397,17 @@
 	opacity: 0.6;
 }
 
+.ai-customization-list-item .item-type-icon {
+	flex-shrink: 0;
+	width: 16px;
+	height: 16px;
+	display: flex;
+	align-items: center;
+	justify-content: center;
+	opacity: 0.8;
+	font-size: 14px;
+}
+
 .ai-customization-list-item .item-text {
 	display: flex;
 	flex-direction: column;
@@ -543,12 +554,11 @@
 .ai-customization-overview .overview-section .section-count {
 	flex-shrink: 0;
 	font-size: 9px;
-	font-weight: 600;
+	font-weight: 500;
 	padding: 1px 5px;
-	background-color: var(--vscode-badge-background);
-	color: var(--vscode-badge-foreground);
+	background-color: var(--vscode-list-inactiveSelectionBackground);
+	color: var(--vscode-list-inactiveSelectionForeground, var(--vscode-foreground));
 	border-radius: 8px;
-	border: 1px solid transparent;
 	min-width: 14px;
 	text-align: center;
 }
@@ -703,7 +713,7 @@
 .mcp-server-item {
 	display: flex;
 	align-items: center;
-	padding: 6px 8px 6px 24px;
+	padding: 6px 8px;
 	cursor: pointer;
 	border-radius: 4px;
 	margin: 2px 0;
diff --git a/src/vs/workbench/contrib/chat/browser/aiCustomization/pluginListWidget.ts b/src/vs/workbench/contrib/chat/browser/aiCustomization/pluginListWidget.ts
index bec772e44fc..ccbda744363 100644
--- a/src/vs/workbench/contrib/chat/browser/aiCustomization/pluginListWidget.ts
+++ b/src/vs/workbench/contrib/chat/browser/aiCustomization/pluginListWidget.ts
@@ -32,6 +32,7 @@ import { IMarketplacePlugin, IPluginMarketplaceService } from '../../common/plug
 import { IPluginInstallService } from '../../common/plugins/pluginInstallService.js';
 import { AgentPluginItemKind, IAgentPluginItem, IInstalledPluginItem, IMarketplacePluginItem } from '../agentPluginEditor/agentPluginItems.js';
 import { pluginIcon } from './aiCustomizationIcons.js';
+import { formatDisplayName, truncateToFirstSentence } from './aiCustomizationListWidget.js';
 import { ILabelService } from '../../../../../platform/label/common/label.js';
 import { CustomizationGroupHeaderRenderer, ICustomizationGroupHeaderEntry, CUSTOMIZATION_GROUP_HEADER_HEIGHT, CUSTOMIZATION_GROUP_HEADER_HEIGHT_WITH_SEPARATOR } from './customizationGroupHeaderRenderer.js';
 
@@ -100,6 +101,7 @@ class PluginItemDelegate implements IListVirtualDelegate<IPluginListEntry> {
 
 interface IPluginInstalledItemTemplateData {
 	readonly container: HTMLElement;
+	readonly typeIcon: HTMLElement;
 	readonly name: HTMLElement;
 	readonly description: HTMLElement;
 	readonly status: HTMLElement;
@@ -112,21 +114,24 @@ class PluginInstalledItemRenderer implements IListRenderer<IPluginInstalledItemE
 	renderTemplate(container: HTMLElement): IPluginInstalledItemTemplateData {
 		container.classList.add('mcp-server-item');
 
+		const typeIcon = DOM.append(container, $('.mcp-server-icon'));
+		typeIcon.classList.add(...ThemeIcon.asClassNameArray(pluginIcon));
+
 		const details = DOM.append(container, $('.mcp-server-details'));
 		const name = DOM.append(details, $('.mcp-server-name'));
 		const description = DOM.append(details, $('.mcp-server-description'));
 		const status = DOM.append(container, $('.mcp-server-status'));
 
-		return { container, name, description, status, disposables: new DisposableStore() };
+		return { container, typeIcon, name, description, status, disposables: new DisposableStore() };
 	}
 
 	renderElement(element: IPluginInstalledItemEntry, _index: number, templateData: IPluginInstalledItemTemplateData): void {
 		templateData.disposables.clear();
 
-		templateData.name.textContent = element.item.name;
+		templateData.name.textContent = formatDisplayName(element.item.name);
 
 		if (element.item.description) {
-			templateData.description.textContent = element.item.description;
+			templateData.description.textContent = truncateToFirstSentence(element.item.description);
 			templateData.description.style.display = '';
 		} else {
 			templateData.description.style.display = 'none';