LXD works fine on WSL2 as unlike WSL1 you're now getting a full Linux kernel.

The main issue left is that WSL2 doesn't start your normal init system and so makes it harder to run a daemon... You end up having to manually start it every time which is a bit annoying.

But my understanding is that Microsoft is actively working on this and that we should have the normal init system run in some way in the near future.