What is the recommended approach for testing custom extensions in Dynamics 365?

Using a sandbox environment for testing custom extensions in Dynamics 365 is the recommended approach because it allows developers to validate their extensions in an isolated setting that mimics the production environment without impacting live operations. A sandbox environment is specifically designed for testing purposes, enabling extensive trials of new features, integrations, and configurations safely.

By utilizing a sandbox, developers can identify bugs, performance issues, and any potential conflicts with other extensions or configurations. This environment allows for testing scenarios that might be risky or disruptive if conducted in a live production setting, thus ensuring that any problems are resolved before the solutions affect end users.

In contrast, directly deploying to a production environment can lead to unforeseen issues and downtime, which would negatively impact users. Performing tests in a live accessible environment poses similar risks, allowing errors or issues to affect real-time operations and potentially damaging business processes. Lastly, conducting tests without user credentials could lead to incomplete testing because certain functionalities and workflows may rely on user permissions and roles. Hence, using a sandbox environment is essential to maintain a controlled and risk-free testing phase.