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>Clipboard works perfectly

Which one? Secondary? And the primary does not work at all?

The Windows clipboard just works, because WSL2 terminals are just regular Windows apps.

At this point - Can't you just SSH into the local linux VM or a remote linux server?

You can, but to get the same edit in the windows UI experience you would need sshfs, which is another nightmare thing to get running on Windows.

Primary and secondary selections are specific to X11 which is not involved at all when running WSL command line apps in a Windows terminal