After a little bit of digging and some debugging, I was able to complete the addition of CSS intellisense into the typescript-lit-html-plugin language plugin for VS Code. In the video below, we can see css intellisene working for the <style> block without any fancy user settings. It just works, and gives a nice clean developer experience that one would expect when authoring lit-html or Polymer/lit-element based web components.

Many thanks to Matt over at Microsoft for taking a look and getting the the pull request merged.

You can start using this now by grabbing the plugin lit-html or by configuing the language service for your editor of choice (see project readme for details).