I find the inline error popup in VS Code difficult to read. There are no line breaks and there is no syntax highlighting to make the structure of a type in the diagnostic message easier to understand. Is there a way to get either of those things?

Currently, it is not supported.
Read more about it here: https://github.com/microsoft/vscode/issues/54272
Here's a very promising solution, released a week ago:
TypeScript Error Translator

GitHub: https://github.com/mattpocock/ts-error-translator
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