Yes, it looks so. They will add a few syscalls that Docker needs to WSL and we will use it on Home Edition.
They could either go the syscall emulation route (as in current WSL), or possibly the "thin hypervisor" route, the fact they're talking kernel versions makes me think that may be what they're planning...
(I work at Microsoft but have no inside knowledge on this; just speculating.)
Whilst it doesn't explicitly mention Virtual Machines or Hypervisors, I'd read this as making use of that kind of technology with some additional tech. for interop with Windows to the level of WSL currently.
EDIT: and here's the confirmation https://devblogs.microsoft.com/commandline/announcing-wsl-2/ it's a VM