Enable AspNetCoreDiagnosticObserver for Azure Functions isolated mode

Previously, the AspNetCoreDiagnosticObserver was disabled for all Azure Functions
when FUNCTIONS_EXTENSION_VERSION and FUNCTIONS_WORKER_RUNTIME were present.
This was correct for in-process functions (to avoid AsyncLocal context issues
with separate Assembly Load Contexts), but incorrect for isolated functions.

In isolated mode, the worker process receives actual HTTP requests via gRPC
proxying for HTTP triggers. These requests should be instrumented by the
AspNetCore observer to properly capture HTTP spans.

Changes:
- Add logic to detect in-process vs isolated functions
- In-process: worker runtime is empty or "dotnet" (skip AspNetCore observer)
- Isolated: worker runtime is "dotnet-isolated" (enable AspNetCore observer)
- Update log message to clarify in-process vs isolated behavior

🤖 Generated with [Claude Code](https://claude.com/claude-code)

Co-Authored-By: Claude <[email protected]>

Author: lucaspimentel

tracer/src/Datadog.Trace/ClrProfiler/Instrumentation.cs

@@ -469,16 +469,25 @@ private static void StartDiagnosticManager()
             var functionsExtensionVersion = EnvironmentHelpers.GetEnvironmentVariable(Datadog.Trace.Configuration.ConfigurationKeys.AzureFunctions.FunctionsExtensionVersion);
             var functionsWorkerRuntime = EnvironmentHelpers.GetEnvironmentVariable(Datadog.Trace.Configuration.ConfigurationKeys.AzureFunctions.FunctionsWorkerRuntime);
 
-            if (!string.IsNullOrEmpty(functionsExtensionVersion) && !string.IsNullOrEmpty(functionsWorkerRuntime))
+            // Check if this is an in-process Azure Function (not isolated)
+            // In-process: worker runtime is empty or "dotnet" (the host process itself)
+            // Isolated: worker runtime is "dotnet-isolated"
+            var isInProcessFunction = !string.IsNullOrEmpty(functionsExtensionVersion)
+                                   && !string.IsNullOrEmpty(functionsWorkerRuntime)
+                                   && !functionsWorkerRuntime.Equals("dotnet-isolated", StringComparison.OrdinalIgnoreCase);
+
+            if (isInProcessFunction)
             {
                 // Not adding the `AspNetCoreDiagnosticObserver` is particularly important for in-process Azure Functions.
                 // The AspNetCoreDiagnosticObserver will be loaded in a separate Assembly Load Context, breaking the connection of AsyncLocal.
                 // This is because user code is loaded within the functions host in a separate context.
-                // Even in isolated functions, we don't want the AspNetCore spans to be created.
-                Log.Debug("Skipping AspNetCoreDiagnosticObserver in Azure Functions.");
+                Log.Debug("Skipping AspNetCoreDiagnosticObserver in in-process Azure Functions.");
             }
             else
             {
+                // For isolated functions, enable AspNetCoreDiagnosticObserver to support ASP.NET Core integration
+                // which uses HTTP proxying for HTTP triggers. In this scenario, the worker receives actual HTTP
+                // requests that should be instrumented by the ASP.NET Core observer.
                 observers.Add(new AspNetCoreDiagnosticObserver());
                 observers.Add(new QuartzDiagnosticObserver());
             }